Chapter 1 s
A Framework for Financial Accounting
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REVIEW QUESTIONS s
Question 1-1 (LO 1-1)
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Accountingsisstheslanguagesofsbusiness.sWhereassasbasicsmathsclasssmightsinvolvesadding,ssubtracti
ng,sandssolvingsforsunknownsvariables,saccountingsinvolvesslearningstosmeasuresbusinessstransactionssa
ndscommunicatingsthosesmeasurementssinsasformatsthatsissgenerallysunderstoodsbysdecisionsmakers.
Question 1-2 (LO 1-1)
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Thosesinterestedsinsmakingsdecisionssaboutsascompanysincludesinvestors,screditors,scustomers,ssupp
liers,smanagers,semployees,scompetitors,sregulators,staxsauthorities,sandslocalscommunities.
Question 1-3 (LO 1-1)
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Financialsaccountingsseeksstosmeasuresbusinesssactivitiessofsascompanysandstoscommunicatesthosesme
asurementsstosexternalspartiessforsdecision-
makingspurposes.sThestwosprimarysexternal,sorsoutsidesthesfirm,suserssofsfinancialsaccountingsinformatio
nsaresinvestorssandscreditors.sManagerialsaccountingsdealsswithsthesmethodssaccountantssusestosprovidesi
nformationstosansorganization’ssinternalsusers,sthatsis,sitssownsmanagers.
Question 1-4 (LO 1-1)
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Thestwosprimarysfunctionssofsfinancialsaccountingsarestosmeasuresbusinesssactivitiessofsascompanysan
dstoscommunicatesinformationsaboutsthosesactivitiesstosinvestorssandscreditorssforsdecision-
makingspurposes.
Question 1-5 (LO 1-2)
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Thesthreesbasicsbusinesssactivitiessaresfinancing,sinvesting,sandsoperatingsactivities.sFinancingsactiv
itiessarestransactionssthatsraisescashsneededstosoperatesthesbusiness,ssuchsassissuingsstocksandsborrowings
moneysfromsasbank.sInvestingsactivitiesstypicallysincludesthespurchasesorsdisposalsofslong-
stermsresourcessthatsaresexpectedstosbenefitsthescompanysforsseverals years,ssuchsassland,sbuildings,sequip
ment,sandsmachinery.sOperatingsactivitiessincludesthesprimarysoperationssofsthescompany,sprovidingspr
oductssandsservicesstoscustomerssandsthesassociatedscostssofsdoingsso,slikesutilities,staxes,sadvertising,swa
ges,srent,sandsmaintenance.
Question 1-6 (LO 1-2)
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TypicalsfinancingsactivitiessforsUPSswouldsincludessellingsstocksandspayingsdividendsstosinvestors,sass
wellsassborrowingsandsrepayingsdebtstoscreditors.
Question 1-7 (LO 1-2)
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TypicalsinvestingsactivitiessforsCaesarssEntertainmentswouldsincludesthespurchasesorsdisposalsofslan
d,scasinosbuildings,shotels,sgamingstables,schairs,scleaningsequipment,sandsfoodspreparationsmachines.
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mittedswithoutsthespriorswrittensconsentsofsMcGrawsHillsEducation.
Solutionss Manual,s Chapters 1 1-1
,Answers to Review Questions (continued)
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Question 1-8 (LO 1-2)
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TypicalsoperatingsactivitiessforsOracleswouldsincludesthessalesofssoftwaresandsconsultingsservices,sass
wellsasscostssrelatedstossalaries,sresearch,sutilities,sadvertising,srent,sandstaxes.
Question 1-9 (LO 1-2)
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Thesthreesmajorslegalsformssofsbusinesssorganizationssincludessolesproprietorship,spartnership,sandsco
rporation?sAscorporationsisschosensbysmostsofstheslargestscompaniessinsthesUnitedsStates.
Question 1-10 (LO 1-
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2)sAssets:sResourcessowned
.sLiabilities:sAmountssowed
.
Stockholders’sequity:sOwners’sclaimsstosresources.
Dividends:sDistributionsstosstockholders.
Revenues:sSalessofsproductssorsservicesstoscustomers.
Expenses:sCostssofssellingsproductssorsservices.
Question 1-11 (LO 1-2)
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Thesmajorsadvantagesofsascorporationsisslimitedsliability.sStockholderssofsascorporationsaresnotshelds
personallysresponsiblesforsthesfinancialsobligationssofsthescorporation.sOwnerssofssolesproprietorshipsso
rspartnershipssremainspersonallysliablesforsactivitiessofsthesbusiness.sCorporationsshavesthesdisadvantage
ssofsdoublestaxationscomparedstossolesproprietorshipssandspartnerships.sSolesproprietorshipsandspartners
hipsformssofsbusinessshavesthesadvantagesthatsincomesisstaxedsonlysonce.sHowever,stherescouldsbesotherst
axsadvantagessforscertainstypessofscorporations,ssuchsassaslowersoverallstaxsratescomparedstospartnership
ssandssolesproprietorships.sSolesproprietorshipssandspartnershipssaresoftenslimitedsinsthesamountsofsfunds
stheyscansraisestosstartsasbusiness.
Question 1-12 (LO 1-3)
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1. Incomesstatement:sReportssthescompany’ssrevenuessandsexpensessduringsansintervalsofstime.sIfsre
venuessexceedsexpenses,sthensthescompanysreportssnetsincome.sIfsexpensessexceedsrevenues,sthens
thescompanysreportssasnets loss.
2. Statementsofsstockholders’sequity:sSummarizesstheschangessinsstockholders’sequitysfromsnetsin
come,sdividends,sandsstocksissuancessduringsansintervalsofstime.
3. Balancessheet:sPresentssthesfinancialspositionsofsthescompanysonsasparticularsdate.sItsshowssthatsa
ssetssequalsliabilitiessplussstockholders’sequity.
4. Statementsofscashsflows:sReportsscashsinflowssandsoutflowssrelatedstosoperating,sinvesting,sandsf
inancingsactivitiessduringsansintervalsofstime.
Question 1-13 (LO 1-3)
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Balancessofsaccountssreportedsinsthesincomesstatement,sstatementsofsstockholders’sequity,sandsstate
mentsofscashsflowssreflectsactivitysfromsthesbeginningsofsthesperiodsthroughsthesendsofsthesperiod.sBalance
ssofsaccountssreportedsinsthesbalancessheetsreflectsthesfinancialspositionsofsthescompanysassofsassingles date,
s thes ends ofs thes period.s Thes incomes statement,s statements ofs stockholders’s equitys and
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tributionspermittedswithoutsthespriorswrittensconsentsofsMcGraws Hills Education
1-2 Financials Accounting,s 6e
, statements ofscashsflowss iss likes as videos (showsseventssovers time),s whereassthes balancessheets isslikesasphotogra
(showsseventssatsaspointsinstime).
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mittedswithoutsthespriorswrittensconsentsofsMcGrawsHillsEducation.
Solutionss Manual,s Chapters 1 1-3
, Answers to Review Questions (continued)
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Question 1-14 (LO 1-3)
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Basicsrevenuesswouldsincludessalesofsproductss(suchsasstoys,sdolls,sandsgames)sandsservicess(suchsasst
hemesparkstickets).sExpensessincludescostsofsmerchandisessold,semployeessalaries,sutilities,sadvertising,s
taxes,sinterest,sandslegalsfees.
Question 1-15 (LO 1-3)
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Thesaccountingsequationsis:sAssetss=sLiabilitiess+sStockholders’sEquity.sThesformatsofsthesbalancesshe
etsfollowssthesaccountingsequation.
Question 1-16 (LO 1-3)
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Assetsswouldsincludesitemsssuchsassmerchandisesinventory,sofficessupplies,sbuildings,sland,strucks,san
dsequipment.sLiabilitiesswouldsincludesitemsssuchsassamountssowedstosemployees,ssuppliers,staxingsauth
orities,sandslenders.
Question 1-17 (LO 1-3)
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Retainedsearningssrepresentsthescumulativesamountsofsnetsincomesearnedsoverstheslifesofsthescompan
ysthatshassnotsbeensdistributedstosstockholderssassdividends.sNetsincomesissshownsinsthesincomesstatemen
tsandsretainedsearningssaresreportedsinsthesbalancessheet.sThus,sretainedsearningssrepresentsasbalancesshe
etsaccountswhichsreflectssthescumulativesresultsofsincomesstatementssoverstheslifesofsthescompanys(lesssa
nysdividends).
Question 1-18 (LO 1-3)
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Thes statements ofscashs flowssreportss operating,s investing,s ands financings activitiess involvings cashsre
ceiptssandscashspaymentssoversansintervalsofstime.sExamplessofseachsinclude:
Operatings–
ssellingsmerchandise,spayingsemployeessalaries,sandspayingsforsadvertisement.sInvestings–
spurchasingslandsandsbuildingsstosopensnewsfactoriessandssellingsequipmentsforscash.
Financings –
s Borrowings froms lenderss ors issuings stocks tos ownerss tos obtains fundss necessarys tosexpandsope
rations.
Question 1-19 (LO 1-3)
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Twos others importants sourcess ofs informations ares thes (1)s managements discussions ands analysiss(
MD&A)sofsthescompany’ssactivitiessands(2)snotesdisclosuresstosthesfinancialsstatements.
Question 1-20 (LO 1-4)
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Successfulscompaniessusestheirsresourcessefficientlystossellsproductssandsservicessforsasprofit.sUnsuc
cessfulscompaniesseithersofferslower-
qualitysproductssandsservicessorsdosnotsefficientlyskeepstheirscostsslow.sWhensascompanysissunprofitable,
sinvestorsswillsneithersinvestsinsnorslendstosthesfirm.sWithoutsthesessourcessofsfinancing,seventuallysthesc
ompanyswillsfail.sWhensascompanysissablestosmakesasprofit,sinvestorssandscreditorssareswillingstostransfers
theirsresourcesstosit,sandsthescompanyswillsexpandsitssprofitablesoperationssevensfurther.sInvestorssandscre
ditorssrelysheavilysonsfinancialsaccountingsinformationsinsmakingsinvestmentsandslendingsdecisions.
©2022s McGrawsHills Education.s Alls rightss reserveds .Authorizeds onlys fors instructors usesins thesclassroom.s Nos reproductions ors furthersdis
tributionspermittedswithoutsthespriorswrittensconsentsofsMcGraws Hills Education
1-4 Financials Accounting,s 6e
