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Solution Manual For Libby/Hodge Financial Accounting, 11th Edition , Verified Chapters 1 - 13, |:Complete Newest Version | Study Guide. €16,75
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Solution Manual For Libby/Hodge Financial Accounting, 11th Edition , Verified Chapters 1 - 13, |:Complete Newest Version | Study Guide.

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Solution Manual For Libby/Hodge Financial Accounting, 11th Edition , Verified Chapters 1 - 13, |:Complete Newest Version | Study Guide. Solution Manual For Libby/Hodge Financial Accounting, 11th Edition , Verified Chapters 1 - 13, |:Complete Newest Version | Study Guide. Solution Manual For Libby/H...

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Voorbeeld van de inhoud

SOLUTION MANUAL FOR j i j i




Financial Accounting11thEditionRobertLibby, ji ji ji ji ji




Patricia Libby, Frank Hodge
ji ji ji ji




Chapter 1 ji




FinancialStatementsandBusinessDecisions ji ji ji ji




ANSWERS TOQUESTIONS ji ji




1. Accounting is a system that collects and processes (analyzes, measures, and
ji ji ji ji ji ji ji ji ji ji



records) financial information about an organization and reports that information to
ji ji ji ji ji ji ji ji ji ji ji



decision makers.
ji ji




2. Financial accounting involves preparation of the four basic financial statements and
ji ji ji ji ji ji ji ji ji ji



related disclosures for external decision makers. Managerial accounting involves the
ji ji ji ji ji ji ji ji ji ji



preparation of detailed plans, budgets, forecasts, and performance reports for
ji ji ji ji ji ji ji ji ji ji



internal decision makers.
ji ji ji




3. Financial reports are used by both internal and external groups and individuals. The
ji ji ji ji ji ji ji ji ji ji ji ji



internal groups are comprised of the various managers of the entity. The external
ji ji ji ji ji ji ji ji ji ji ji ji ji



groups include the owners, investors, creditors, governmental agencies, other
ji ji ji ji ji ji ji ji ji



interested parties, and the public at large.
ji ji ji ji ji ji ji




4. Investors purchase all or part of a business and hope to gain by receiving part of
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



what the company earns and/or selling their ownership interest in the company in
ji ji ji ji ji ji ji ji ji ji ji ji ji



the future at a higher price than they paid. Creditors lend money to a company for a
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



specific length of time and hope to gain by charging interest on the loan.
ji ji ji ji ji ji ji ji ji ji ji ji ji ji

,5. In a society, each organization can be defined as a separate accounting entity. An
ji ji ji ji ji ji ji ji ji ji ji ji ji



accounting entity is the organization for which financial data are to be collected.
ji ji ji ji ji ji ji ji ji ji ji ji ji



Typical accounting entities are a business, a church, a governmental unit, a
ji ji ji ji ji ji ji ji ji ji ji ji



university and other nonprofit organizations such as a hospital and a welfare
ji ji ji ji ji ji ji ji ji ji ji ji



organization. A business typically is defined and treated as a separate entity because
ji ji ji ji ji ji ji ji ji ji ji ji ji



the owners, creditors, investors, and other interested parties need to evaluate its
ji ji ji ji ji ji ji ji ji ji ji ji



performance and its potential separately from other entities and from its owners.
ji ji ji ji ji ji ji ji ji ji ji ji




6. Name of Statement ji ji Alternative Title ji



(a) Income Statement ji (a) Statement of Earnings; Statement of
ji ji ji ji ji



Income; Statement of Operations ji ji ji



(b) Balance Sheet ji (b) Statement of Financial Position ji ji ji ji



(c) Cash Flow Statement ji ji (c) Statement of Cash Flows ji ji ji ji




7. The heading of each of the four required financial statements should include the
ji ji ji ji ji ji ji ji ji ji ji ji



following:
ji



(a) Name of the entity ji ji ji



(b) Name of the statement ji ji ji



(c) Date of the statement, or the period of time ji ji ji ji ji ji ji ji



(d) Unit of measure ji ji




8. (a) The purpose of the income statement is to present information about the
ji ji ji ji ji ji ji ji ji ji ji



revenues, expenses, and the net income of an entity for a specified period of
ji ji ji ji ji ji ji ji ji ji ji ji ji ji



time.
ji



(b) The purpose of the balance sheet is to report the financial position of an entity at a
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



given date, that is, to report information about the assets, liabilities and
ji ji ji ji ji ji ji ji ji ji ji ji



stockholders’ equity of the entity as of a specific date.
ji ji ji ji ji ji ji ji ji ji



(c) The purpose of the statement of cash flows is to present information about the
ji ji ji ji ji ji ji ji ji ji ji ji ji



flow of cash into the entity (sources), the flow of cash out of the entity (uses),
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



and the net increase or decrease in cash during the period.
ji ji ji ji ji ji ji ji ji ji ji



(d) The statement of stockholders’ equity reports the changes in each of the
ji ji ji ji ji ji ji ji ji ji ji



company’s stockholders’ equity accounts during the accounting period,
ji ji ji ji ji ji ji ji



including issue and repurchase of stock and the way that net income and
ji ji ji ji ji ji ji ji ji ji ji ji ji



distribution of dividends affected the retained earnings of the company during
ji ji ji ji ji ji ji ji ji ji ji



that period.
ji ji




9. The income statement and the statement of cash flows are dated ―For the Year
ji ji ji ji ji ji ji ji ji ji ji ji ji



Ended December 31‖ because they report the inflows and outflows of resources
ji ji ji ji ji ji ji ji ji ji ji ji



during a period of time. In contrast, the balance sheet is dated ―At December 31‖
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



because it represents the resources, obligations, and stockholders’ equity at a
ji ji ji ji ji ji ji ji ji ji ji



specific date.
ji ji

,10. Assets are important to creditors and investors because assets provide a basis for
ji ji ji ji ji ji ji ji ji ji ji ji



judging whether sufficient resources are available to operate the company. Assets
ji ji ji ji ji ji ji ji ji ji ji



are also important because they could be sold for cash in the event the company
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



goes out of business. Liabilities are important to creditors and investors because
ji ji ji ji ji ji ji ji ji ji ji ji



the company must be able to generate sufficient cash from operations or further
ji ji ji ji ji ji ji ji ji ji ji ji ji



borrowing to meet the payments required by debt agreements. If a business does
ji ji ji ji ji ji ji ji ji ji ji ji ji



not pay its creditors, the law may give the creditors the right to force the sale of
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



assets sufficient to meet their claims.
ji ji ji ji ji ji




11. Net income is the excess of total revenues over total expenses. Net loss is the
ji ji ji ji ji ji ji ji ji ji ji ji ji ji



excess of total expenses over total revenues.
ji ji ji ji ji ji ji




12. The equation for the income statement is Revenues - Expenses = Net Income (or
ji ji ji ji ji ji ji ji ji ji ji ji ji



Net Loss if the amount is negative). Thus, the three major items reported on the
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



income statement are (1) revenues, (2) expenses, and (3) net income.
ji ji ji ji ji ji ji ji ji ji ji



13. The equation for the balance sheet (also known as the basic accounting equation) is:
ji ji ji ji ji ji ji ji ji ji ji ji ji



Assets = Liabilities + Stockholders’ Equity. Assets are the probable (expected) future
ji ji ji ji ji ji ji ji ji ji ji ji



economic benefits owned by the entity as a result of past transactions. They are the
ji ji ji ji ji ji ji ji ji ji ji ji j i ji ji



resources owned by the business at a given point in time such as cash, receivables,
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



inventory, machinery, buildings, land, and patents. Liabilities are probable
ji ji ji ji ji ji ji ji ji



(expected) debts or obligations of the entity as a result of past transactions that will
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



be paid with assets or services in the future. They are the obligations of the entity
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



such as accounts payable, notes payable, and bonds payable. Stockholders’ equity
ji ji ji ji ji ji ji ji ji ji ji



is financing provided by owners of the business and operations. It is the claim of the
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



owners to the assets of the business after the creditors’ claims have been satisfied. It
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



may be thought of as the residual interest because it represents assets minus
ji ji ji ji ji ji ji ji ji ji ji ji ji



liabilities.
ji




14. The equation for the statement of cash flows is: Cash flows from operating activities
ji ji ji ji ji ji ji ji ji ji ji ji ji



+ Cash flows from investing activities + Cash flows from financing activities = Change
ji ji ji ji ji ji ji ji ji ji ji ji ji



in cash for the period. The net cash flows for the period represent the increase or
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



decrease in cash that occurred during the period. Cash flows from operating activities
ji ji ji ji ji ji ji ji ji ji ji ji ji



are cash flows directly related to earning income (normal business activity including
ji ji ji ji ji ji ji ji ji ji ji ji



interest paid and income taxes paid). Cash flows from investing activities include cash
ji ji ji ji ji ji ji ji ji ji ji ji ji



flows that are related to the acquisition or sale of productive assets used by the
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



company. Cash flows from financing activities are directly related to the financing of
ji ji ji ji ji ji ji ji ji ji ji ji ji



the enterprise itself.
ji ji ji




15. The retained earnings equation is: Beginning Retained Earnings + Net Income -
ji ji ji ji ji ji ji ji ji ji ji



Dividends = Ending Retained Earnings. It begins with beginning-of-the-year
ji ji ji ji ji ji ji ji ji



Retained Earnings which is the prior year’s ending retained earnings reported on
ji ji ji ji ji ji ji ji ji ji ji ji



the balance sheet. The current year's Net Income reported on the income
ji ji ji j i ji ji ji ji ji ji ji ji



statement is added and the current year's Dividends are subtracted from this
ji ji ji ji ji ji ji ji ji ji ji ji



amount. The ending Retained Earnings amount is reported on the end-of-period
ji ji ji ji ji ji ji ji ji ji ji



balance sheet.
ji ji

, 16. Marketing managers and credit managers use customers' financial statements to ji ji ji ji ji ji ji ji ji



decide whether to extend them credit for their purchases. Purchasing managers use
ji ji ji ji ji ji ji ji ji ji ji j i



potential suppliers' financial statements to judge whether the suppliers have the
ji ji ji ji ji ji ji ji ji ji ji



resources necessary to meet current and future demand. Human resource managers
ji ji ji ji ji ji ji ji ji ji ji



use financial statements as a basis for contract negotiations, to determine what pay
ji ji ji ji ji ji ji ji ji ji ji ji ji



rates the company can afford. The net income figure even serves as a basis to pay
ji ji ji ji ji j i ji ji ji ji ji ji ji ji ji ji



bonuses not only to management, but to other employees through profit sharing
ji ji ji ji ji ji ji ji ji ji ji ji



plans.
ji




17. The Securities and Exchange Commission (SEC) is the U.S. government agency
ji ji ji ji ji ji ji ji ji ji



which determines the financial statements that public companies must provide to
ji ji ji ji ji ji ji ji ji ji ji



stockholders and the measurement rules used in producing those statements. The
ji ji ji ji ji ji ji ji ji ji ji



Financial Accounting Standards Board (FASB) is the private sector body given the
ji ji ji ji ji ji ji ji ji ji ji ji



primary responsibility to work out the detailed rules which become generally
ji ji ji ji ji ji ji ji ji ji ji



accepted accounting principles.
ji ji ji



18. Management is responsible for preparing the financial statements and other ji ji ji ji ji ji ji ji ji



information contained in the annual report and for the maintenance of a system of
ji ji ji ji ji ji ji ji ji ji ji ji ji ji



internal accounting policies, procedures and controls. These measures are intended
ji ji ji ji ji ji ji ji ji j i



to provide reasonable assurance, at appropriate cost, that transactions are processed
ji ji ji ji ji ji ji ji ji ji ji



in accordance with company authorization as well as properly recorded and reported
ji ji ji ji ji ji ji ji ji ji ji ji



in the financial statements, and that assets are adequately safeguarded. Independent
ji ji ji ji ji ji ji ji ji ji ji



auditors examine the financial reports (prepared by management) and the underlying
ji ji ji ji ji ji ji ji ji ji ji



records to assure that the reports represent what they claim and conform with
ji ji ji ji ji ji ji ji ji ji ji ji ji



generally accepted accounting principles (GAAP).
ji ji ji ji ji




19. A sole proprietorship is an unincorporated business owned by one individual. A
ji ji ji ji ji ji ji ji ji ji ji



partnership is an unincorporated association of two or more individuals to carry on a
ji ji ji ji ji ji ji ji ji ji ji ji ji ji



business. A corporation is a business that is organized under the laws of a particular
ji ji ji ji ji ji ji ji ji ji ji ji ji ji j i



state whereby a charter is granted and the entity is authorized to issue shares of stock
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji



as evidence of ownership by the owners (i.e., stockholders).
ji ji ji ji ji ji ji ji ji




20. A CPA firm normally renders three services: auditing, management advisory
ji ji ji ji ji ji ji ji ji



services, and tax services. Auditing involves examination of the records and financial
ji ji ji ji ji ji ji ji ji ji ji ji



reports to determine whether they―fairly present‖ the financial position and results of
ji ji ji ji ji ji ji ji ji ji ji ji ji



operations of the entity. Management advisory services involve management advice
ji ji ji ji ji ji ji ji ji ji



to individual business enterprises and other entities, much like those provided by a
ji ji ji ji ji ji ji ji ji ji ji ji ji



consulting firm. Tax services involve providing tax planning advice to clients (both
ji ji ji ji ji ji ji ji ji ji ji ji



individuals and businesses) and preparation of their tax returns.
ji ji ji ji ji ji ji ji ji




ANSWERS TOMULTIPLECHOICE ji ji ji




1. b) j i 2. d) j i 3. d) j i 4. c) j i 5. a) j i



6. d) j i 7. a) j i 8. a) j i 9. c) j i 10. b) j i

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