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
• Accounting is a system that collects and processes (analyzes, measures, and records)
financial information about an organization and reports that information todecision makers.
• 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 for internal decision makers.
• 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, governmental agencies, other interested parties, and the public at large.
• 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 fora specific length of time and hope to gain by
charging interest on the loan.
• 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 itsowners.
• Name of Statement Alternative Title
• Income Statement (a) Statement of Earnings; Statement of
Income; Statement of Operations
, • Balance Sheet (b) Statement of Financial Position
• Cash Flow Statement (c) Statement of Cash Flows
• The heading of each of the four required financial statements should include the
following:
• Name of the entity
• Name of the statement
• Date of the statement, or the period of time
• Unit of measure
• (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 oftime.
• The purpose of the balance sheet is to report the financial position of an entityat a given
date, that is, to report information about the assets, liabilities and stockholders’ equity of the entity as of
a specific date.
• The purpose of the statement of cash flows is to present information about theflow 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.
• 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
duringthat period.
• 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.
• Assets are important to creditors and investors because assets provide a basis for judging
whether sufficient resources are available to operate the company. Assetsare also important because
they could be sold for cash in the event the company goes out of business. Liabilities are important to
creditors and investors because the company must be able to generate sufficient cash from operations or
further borrowing to meet the payments required by debt agreements. If a business does not pay its
creditors, the law may give the creditors the right to force the sale of assets sufficient to meet their
claims.
