Solution Manual for Financial Accounting 11th Edition Libby, Libby & Hodge | PDF Download

TEST BANK j


Financial Accounting
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by Robert Libby, Patricia Libby, Frank Hodge
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11th Edition.
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FULL TEST BANK!!!
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, FULL SOLUTION MANUAL FOR
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Financial Accounting 11th Edition Robert Libby, Patrici
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a Libby, Frank Hodge
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Chapter 1 j


Financial Statements and Business Decisions
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ANSWERSjTOjQUESTIONS

1. Accountingjisjajsystemjthatjcollectsjandjprocessesj(analyzes,jmeasures,jandjrecords
)jfinancialjinformationjaboutjanjorganizationjandjreportsjthatjinformationjtojdecisionjm
akers.

2. Financialjaccountingjinvolvesjpreparationjofjthejfourjbasicjfinancialjstatementsjandjrel
atedjdisclosuresjforjexternaljdecisionjmakers.jManagerialjaccountingjinvolvesjthejpre
parationjofjdetailedjplans,jbudgets,jforecasts,jandjperformancejreportsjforjinternaljde
cisionjmakers.

3. Financialjreportsjarejusedjbyjbothjinternaljandjexternaljgroupsjandjindividuals.jThejinte
rnaljgroupsjarejcomprisedjofjthejvariousjmanagersjofjthejentity.jThejexternaljgroupsjin
cludejthejowners,jinvestors,jcreditors,jgovernmentaljagencies,jotherjinterestedjpartie
s,jandjthejpublicjatjlarge.

4. Investorsjpurchasejalljorjpartjofjajbusinessjandjhopejtojgainjbyjreceivingjpartjofjwhatj
thejcompanyjearnsjand/orjsellingjtheirjownershipjinterestjinjthejcompanyjinjthejfutur
ejatjajhigherjpricejthanjtheyjpaid.jCreditorsjlendjmoneyjtojajcompanyjforjajspecificjlen
gthjofjtimejandjhopejtojgainjbyjchargingjinterestjonjthejloan.




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,5. Injajsociety,jeachjorganizationjcanjbejdefinedjasjajseparatejaccountingjentity.jAnjacco
untingjentityjisjthejorganizationjforjwhichjfinancialjdatajarejtojbejcollected.jTypicaljacc
ountingjentitiesjarejajbusiness,jajchurch,jajgovernmentaljunit,jajuniversityjandjotherjno
nprofitjorganizationsjsuchjasjajhospitaljandjajwelfarejorganization.jAjbusinessjtypicall
yjisjdefinedjandjtreatedjasjajseparatejentityjbecausejthejowners,jcreditors,jinvestors,ja
ndjotherjinterestedjpartiesjneedjtojevaluatejitsjperformancejandjitsjpotentialjseparatel
yjfromjotherjentitiesjandjfromjitsjowners.

6. NamejofjStatement AlternativejTitle
(a) IncomejStatement (a)jStatementjofjEarnings;jStatementjof
Income;jStatementjofjOperations
(b) BalancejSheet (b)jStatementjofjFinancialjPosition
(c) CashjFlowjStatement (c)j StatementjofjCashjFlows

7. Thejheadingjofjeachjofjthejfourjrequiredjfinancialjstatementsjshouldjincludejthejfoll
owing:
(a) Namejofjthejentity
(b) Namejofjthejstatement
(c) Datejofjthejstatement,jorjthejperiodjofjtime
(d) Unitjofjmeasure

8. (a)
Thejpurposejofjthejincomejstatementjisjtojpresentjinformationjaboutjthejreven
ues,jexpenses,jandjthejnetjincomejofjanjentityjforjajspecifiedjperiodjofjtime.
(b) Thejpurposejofjthejbalancejsheetjisjtojreportjthejfinancialjpositionjofjanjentityjatjaj
givenjdate,jthatjis,jtojreportjinformationjaboutjthejassets,jliabilitiesjandjstockhold
ers’jequityjofjthejentityjasjofjajspecificjdate.
(c) Thejpurposejofjthejstatementjofjcashjflowsjisjtojpresentjinformationjaboutjthejflo
wjofjcashjintojthejentityj(sources),jthejflowjofjcashjoutjofjthejentityj(uses),jandjthej
netjincreasejorjdecreasejinjcashjduringjthejperiod.
(d) Thejstatementjofjstockholders’jequityjreportsjthejchangesjinjeachjofjthejcompa
ny’sjstockholders’jequityjaccountsjduringjthejaccountingjperiod,jincludingjissuej
andjrepurchasejofjstockjandjthejwayjthatjnetjincomejandjdistributionjofjdividend
sjaffectedjthejretainedjearningsjofjthejcompanyjduringjthatjperiod.

9. Thejincomejstatementjandjthejstatementjofjcashjflowsjarejdatedj―ForjthejYearjEnd
edjDecemberj31‖jbecausejtheyjreportjthejinflowsjandjoutflowsjofjresourcesjduringj
ajperiodjofjtime.jInjcontrast,jthejbalancejsheetjisjdatedj―AtjDecemberj31‖jbecausejitj
representsjthejresources,jobligations,jandjstockholders’jequityjatjajspecificjdate.

, 10. Assetsjarejimportantjtojcreditorsjandjinvestorsjbecausejassetsjprovidejajbasisjforjjud
gingjwhetherjsufficientjresourcesjarejavailablejtojoperatejthejcompany.jAssetsjarejal
sojimportantjbecausejtheyjcouldjbejsoldjforjcashjinjthejeventjthejcompanyjgoesjoutjof
jbusiness.jLiabilitiesjarejimportantjtojcreditorsjandjinvestorsjbecausejthejcompanyjm
ustjbejablejtojgeneratejsufficientjcashjfromjoperationsjorjfurtherjborrowingjtojmeetjth
ejpaymentsjrequiredjbyjdebtjagreements.jIfjajbusinessjdoesjnotjpayjitsjcreditors,jthejl
awjmayjgivejthejcreditorsjthejrightjtojforcejthejsalejofjassetsjsufficientjtojmeetjtheirjcla
ims.

11. Netjincomejisjthejexcessjofjtotaljrevenuesjoverjtotaljexpenses.jNetjlossjisjthejexc
essjofjtotaljexpensesjoverjtotaljrevenues.

12. ThejequationjforjthejincomejstatementjisjRevenuesj-
jExpensesj=jNetjIncomej(orjNetjLossjifjthejamountjisjnegative).jThus,jthejthreejmajor
jitemsjreportedjonjthejincomejstatementjarej(1)jrevenues,j(2)jexpenses,jandj(3)jnetji
ncome.
13. Thejequationjforjthejbalancejsheetj(alsojknownjasjthejbasicjaccountingjequation)jis:jA
ssetsj=jLiabilitiesj+jStockholders’jEquity.jAssetsjarejthejprobablej(expected)jfuturejec
onomicjbenefitsjownedjbyjthejentityjasjajresultjofjpastjtransactions.j Theyjarejthejreso
urcesjownedjbyjthejbusinessjatjajgivenjpointjinjtimejsuchjasjcash,jreceivables,jinvento
ry,jmachinery,jbuildings,jland,jandjpatents.jLiabilitiesjarejprobablej(expected)jdebtsjo
rjobligationsjofjthejentityjasjajresultjofjpastjtransactionsjthatjwilljbejpaidjwithjassetsjorjs
ervicesjinjthejfuture.jTheyjarejthejobligationsjofjthejentityjsuchjasjaccountsjpayable,jn
otesjpayable,jandjbondsjpayable.jStockholders’jequityjisjfinancingjprovidedjbyjowner
sjofjthejbusinessjandjoperations.jItjisjthejclaimjofjthejownersjtojthejassetsjofjthejbusine
ssjafterjthejcreditors’jclaimsjhavejbeenjsatisfied.jItjmayjbejthoughtjofjasjthejresidualjint
erestjbecausejitjrepresentsjassetsjminusjliabilities.

14. Thejequationjforjthejstatementjofjcashjflowsjis:jCashjflowsjfromjoperatingjactivities
+jCashjflowsjfromjinvestingjactivitiesj+jCashjflowsjfromjfinancingjactivitiesj=jChangejinj
cashjforjthejperiod.jThejnetjcashjflowsjforjthejperiodjrepresentjthejincreasejorjdecrease
jinjcashjthatjoccurredjduringjthejperiod.jCashjflowsjfromjoperatingjactivitiesjarejcashjflo
wsjdirectlyjrelatedjtojearningjincomej(normaljbusinessjactivityjincludingjinterestjpaidja
ndjincomejtaxesjpaid).jCashjflowsjfromjinvestingjactivitiesjincludejcashjflowsjthatjarejre
latedjtojthejacquisitionjorjsalejofjproductivejassetsjusedjbyjthejcompany.jCashjflowsjfro
mjfinancingjactivitiesjarejdirectlyjrelatedjtojthejfinancingjofjthejenterprisejitself.

15. Thejretainedjearningsjequationjis:jBeginningjRetainedjEarningsj+jNetjIncomej-
jDividendsj=jEndingjRetainedjEarnings.jItjbeginsjwithjbeginning-of-the-
yearjRetainedjEarningsjwhichjisjthejpriorjyear’sjendingjretainedjearningsjreportedjo
njthejbalancejsheet.j Thejcurrentjyear'sjNetjIncomejreportedjonjthejincomejstateme
ntjisjaddedjandjthejcurrentjyear'sjDividendsjarejsubtractedjfromjthisjamount.jTheje
ndingjRetainedjEarningsjamountjisjreportedjonjthejend-of-periodjbalancejsheet.




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