SOLUTION MANUAL FOR Financial Accounting 11th Edition by Robert Libby, All Chapters 1 - 13 TABLE OF CONTENTS CHAPTER 1: Financial Statements and Business Decisions CHAPTER 2: Investing and Financing Decisions and the Accounting System CHAPTER 3: Operating Decisions and the Accounting System CHAPTER 4: Adjustments, Financial Statements, and the Closing Process CHAPTER 5: Communicating and Analyzing Accounting Information CHAPTER 6: Reporting and Interpreting Sales Revenue, Receivables, and Cash CHAPTER 7: Reporting and Interpreting Cost of Goods Sold and Inventory CHAPTER 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources CHAPTER 9: Reporting and Interpreting Liabilities CHAPTER 10: Reporting and Interpreting Bond Securities CHAPTER 11: Reporting and Interpreting Stockholders’ Equity CHAPTER 12: Statement of Cash Flows CHAPTER 13: Analyzing Financial Statements Chapter 1 Financial Statements and Business Decisions ANSWERS TO QUESTIONS 1. Accounting is a system that collects and processes (analyzes, measures, and records) financial information about an organization and reports that information to decision makers. 2. Financial accounting involves preparation of the four basic financial statements and related disclosures for external decision makers. Managerial accounting involves the preparation of detailed plans, budgets, forecasts, and performance reports fo r internal decision makers. 3. Financial reports are used by both internal and external groups and individuals. The internal groups are comprised of the various managers of the entity. The external groups include the owners, investors, creditors, governmenta l agencies, other interested parties, and the public at large. 4. Investors purchase all or part of a business and hope to gain by receiving part of what the company earns and/or selling their ownership interest in the company in the future at a higher price than they paid. Creditors lend money to a company for a specific length of time and hope to gain by charging interest on the loan. 5. In a society, each organization can be defined as a separate accounting entity. An accounting entity is the organization for which financial data are to be collected. Typical accounting entities are a business, a church, a governmental unit, a university and other nonprofit organizations such as a hospital and a welfare organization. A business typically is defined and treated as a separate entity because the owners, creditors, investors, and other interested parties need to evaluate its performance and its potential separately from other entities and from its owners. 6. Name of Statement Alternati ve Title (a) Income Statement (a) Statement of Earnings; Statement of Income; Statement of Operations (b) Balance Sheet (b) Statement of Financial Position (c) Cash Flow Statement (c) Statement of Cash Flows 7. The heading of each of the four required financial statements should include the following: (a) Name of the entity (b) Name of the statement (c) Date of the statement, or the period of time (d) Unit of measure 8. (a) The purpose of the income statement is to present information about the revenues, expenses, and the net income of an entity for a specified period of time. (b) The purpose of the balance sheet is to report the financial position of an entity at a given date, that is, to report information about the assets, liabilities and stockholders’ equity of the entity as of a specific date. (c) The purpose of the statement of cash flows is to present information about the flow of cash into the entity (sources), the flow of cash out of the entity (uses), and the net increase or decrease in cash during the period. (d) The statement of stockholders’ equity reports the changes in each of the company’s stockholders’ equity accounts during the accounting period, including issue and repurchase of stock and the way that net income and distribution of dividends affected the retained earnings of the company during that period. 9. The income statement and the statement of cash flows are dated ―For the Year Ended December 31‖ because they report the inflows and outflows of resources during a period of time. In contrast, the balance sheet is dated ―At December 31‖ because it represents the resources, obligations, and stockholders’ equity at a specific date.
