Solution Manual for Fundamentals of Financial Accounting, 6th Canadian Edition by Phillips | Complete Solutions for All Chapters (1-13)

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Solution Manual for Fundamentals of Financial Accounting
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6CE Fred Phillips, Robert Libby, Patricia Libby, Brandy
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Mackintosh Chapter 1-13
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Chapter 1 Business Decisions and Financial Accounting
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ANSWERSMTOMQUESTIONS

1. AccountingMisMaMsystemMofManalyzing,Mrecording,MandMsummarizingMtheMresultsMofMaMbusiness‘s
activitiesMandMthenMreportingMthemMtoMdecisionMmakers.

2. AnMadvantageMofMoperatingMasMaMsoleMproprietorship,MratherMthanMaMcorporation,MisMthatMitMisMeasy
MtoM establish.MAnotherMadvantageMisMthatMincomeMfromMaMsoleMproprietorshipMisMtaxedMonlyMonceMin

MtheMhandsM ofMtheMindividualMproprietorM(incomeMfromMaMcorporationMisMtaxedMinMtheMcorporationMa

ndMthenMagainMinM theMhandsMofMtheMindividualMproprietor).MAMdisadvantageMofMoperatingMasMaMsole
Mproprietorship,M ratherM thanMaMcorporation,MisMthatMtheMindividualMproprietorMcanMbeMheldMresponsi

bleMforMtheMdebtsMofMtheM business.
3. FinancialMaccountingMfocusesMonMpreparingMandMusingMtheMfinancialMstatementsMthatMareMmadeMavai
lableM toMownersMandMexternalMusersMsuchMasMcustomers,Mcreditors,MandMpotentialMinvestorsMwhoMare
MinterestedM inMreadingMthem.MManagerialMaccountingMfocusesMonMotherMaccountingMreportsMthatMar

eMnotMreleasedMtoM theMgeneralMpublic,MbutMinsteadMareMpreparedMandMusedMbyMemployees,Msuperv
isors,MandMmanagersMwhoM runMtheMcompany.
4. FinancialMreportsMareMusedMbyMbothMinternalMandMexternalMgroupsMandMindividuals.MTheMinternalMgr
oupsM areMcomprisedMofMtheMvariousMmanagersMofMtheMbusiness.MTheMexternalMgroupsMincludeMinves
tors,M creditors,MgovernmentalMagencies,MotherMinterestedMparties,MandMtheMpublicMatMlarge.
5. TheMbusinessMitself,MnotMtheMindividualMshareholdersMwhoMownMtheMbusiness,MisMviewedMasMowningMt
heM assetsMandMowingMtheMliabilitiesMonMitsMbalanceMsheet.MAMbusiness‘sMbalanceMsheetMincludesMth
eMassets,M liabilities,MandMshareholders‘MequityMofMonlyMthatMbusinessMandMnotMtheMpersonalMassets
,Mliabilities,MandM equityMofMtheMshareholders.M TheMfinancialMstatementsMofMaMcompanyMshowMtheMr
esultsMofMtheMbusiness




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activitiesMofMonlyMthatMcompany.

6. (a)M OperatingM–
MTheseMactivitiesMareMdirectlyMrelatedMtoMearningMprofits.MTheyMincludeMbuyingMsupplies,M makingMpr


oducts,MservingMcustomers,McleaningMtheMpremises,Madvertising,MrentingMaMbuilding,MrepairingM equip
ment,MandMobtainingMinsuranceMcoverage.

(b) InvestingM–
MTheseMactivitiesMinvolveMbuyingMandMsellingMproductiveMresourcesMwithMlongMlivesM(suchMasM buildings,Ml


and,Mequipment,MandMtools),MpurchasingMinvestments,MandMlendingMtoMothers.
(c) FinancingM–
MAnyMborrowingMfromMbanks,MrepayingMbankMloans,MreceivingMcontributionsMfromM shareholde

rs,MorMpayingMdividendsMtoMshareholdersMareMconsideredMfinancingMactivities.



7. TheMheadingMofMeachMofMtheMfourMprimaryMfinancialMstatementsMshouldMincludeMtheMfollowing:
(a) NameMofMtheMbusiness
(b) NameMofMtheMstatement
(c) DateMofMtheMstatement,MorMtheMperiodMofMtime

8. (a)M TheMpurposeMofMtheMbalanceMsheetMisMtoMreportMtheMfinancialMpositionM(assets,M liabilitiesMand
shareholders‘Mequity)MofMaMbusinessMatMaMpointMinMtime.
(b) TheMpurposeMofMtheMincomeMstatementMisMtoMpresentMinformationMaboutMtheMrevenues,Mexpe
nses,M andMnetMincomeMofMaMbusinessMforMaMspecifiedMperiodMofMtime.
(c) TheMstatementMofMretainedMearningsMreportsMtheMwayMthatMnetMincomeMandMtheMdistributio
nMofM dividendsMaffectedMtheMfinancialMpositionMofMtheMcompanyMduringMtheMperiod.
(d) TheMpurposeMofMtheMstatementMofMcashMflowsMisMtoMsummarizeMhowMaMbusiness‘sMoperating,
investing,MandMfinancingMactivitiesMcausedMitsMcashMbalanceMtoMchangeMoverMaMparticularMperiodMofMtime.

9. TheMincomeMstatement,MstatementMofMretainedMearnings,MandMstatementMofMcashMflowsMwouldMbeMdated
―ForMtheMYearMEndedMDecemberM31,M2020,‖MbecauseMtheyMreportMtheMinflowsMandMoutflowsMofMreso
urcesM duringMaMperiodMofMtime.MInMcontrast,MtheMbalanceMsheetMwouldMbeMdatedM―AtMDecemberM31,M
2020,‖MbecauseM itMrepresentsMtheMassets,MliabilitiesMandMshareholders‘MequityMatMaMspecificMdate.

10. NetMincomeMisMtheMexcessMofMtotalMrevenuesMoverMtotalMexpenses.MAMnetMlossMoccursMifMtotalMex
pensesM exceedMtotalMrevenues.

11. TheMaccountingMequationMforMtheMbalanceMsheetMis:MAssetsM¶MLiabilitiesM±MShareholders‘M Equity.M A
ssetsM areMtheMeconomicMresourcesMcontrolledMbyMtheMcompany.
LiabilitiesMare
M amountsMowedMbyMtheMbusiness.M Shareholders‘MequityMisMtheMowners‘MclaimsMtoMtheMbusiness.MItM i

ncludesMamountsMcontributedMtoMtheMbusinessM(byMinvestorsMthroughMpurchasingMtheMcompany‘sM sh
ares)MandMtheMamountsMearnedMandMaccumulatedMthroughMprofitableMbusinessMoperations.

12. TheMequationMforMtheMincomeMstatementMisMRevenuesM–
MExpensesM=MNetMIncome.MRevenuesMareM increasesMinMaMcompany‘sMresources,MarisingMprimaril


yMfromMitsMoperatingMactivities.M ExpensesMareM decreasesMinMaMcompany‘sMresources,MarisingMp
rimarilyMfromMitsMoperatingMactivities.MNetMIncomeMis
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equalMtoMrevenuesMminusMexpenses.M (IfMexpensesMareMgreaterMthanMrevenues,MtheMcompanyMhasMaMN
etM Loss.)
13. TheMequationMforMtheMstatementMofMretainedMearningsMis:MBeginningM RetainedMEarningsM+MNetMIncome
M-M DividendsM=MEndingMRetainedMEarnings.MItMbeginsMwithMbeginning-of-the-

yearMretainedMearningsMwhichMisM theMpriorMyear‘sMendingMretainedMearningsMreportedMonMtheMpriorMy
ear‘sMbalanceMsheet.M TheMcurrentMyear'sM netMincomeMreportedMonMtheMincomeMstatementMisMaddedMan
dMtheMcurrentMyear'sMdividendsMareMsubtractedM fromMthisMamount.MTheMendingMretainedMearningsMam
ountMisMreportedMonMtheMend-of-yearMbalanceMsheet.
14. TheMequationMforMtheMstatementMofMcashMflowsMis:MCashMflowsMfromMoperatingMactivitiesM+MCashMflow
sMfromM investingMactivitiesM+MCashMflowsMfromMfinancingMactivitiesM=MChangeMinMcashMforMtheMperiod.
MChangeMinM cashMforMtheMperiodM+MBeginningMcashMbalanceM=MEndingMcashMbalance.M TheMnetMcashMf

lowsMforMtheMperiodM representMtheMincreaseMorMdecreaseMinMcashMthatMoccurredMduringMtheMperiod.M
CashMflowsMfromMoperatingM activitiesMareMcashMflowsMdirectlyMrelatedMtoMearningMincomeM(normalMb
usinessMactivity).MCashMflowsMfromM investingMactivitiesMincludeMcashMflowsMthatMareMrelatedMtoMtheMac
quisitionMorMsaleMofMtheMcompany‘sMlong-
M termMassets.MCashMflowsMfromMfinancing MactivitiesMareMdirectlyMrelatedMtoMtheMfinancingMofMtheMcom

pany.
15. Currently,MtheMCharteredMProfessionalMAccountantsMofMCanadaM(CPA)MisMgivenMtheMprimaryMresponsib
ilityM forMsettingMtheMdetailedMrulesMthatMbecomeMGenerallyMAcceptedMAccountingMPrinciplesM(GAAP)M
inMCanada.M (Internationally,MtheMInternationalMAccountingMStandardsMBoardM(IASB)MhasMtheMresponsi
bilityMforMsettingM accountingMrulesMknownMasMInternationalMFinancialMReportingMStandardsM(IFRS).)
16. TheMmainMgoalMofMaccountingMrulesMisMtoMensureMthatMcompaniesMproduceMusefulMfinancialMinformati
onM forMpresentMandMpotentialMinvestors,Mlenders,MandMotherMcreditorsMinMmakingMdecisionsMinMtheirM
capacityM asMcapitalMproviders.M FinancialMinformationMmustMshowMrelevanceMandMfaithfulMrepresent
ation,MasMwellM asMbeMcomparable,Mverifiable,Mtimely,MandMunderstandable.

17. AnMethicalMdilemmaMisMaMsituationMwhereMfollowingMoneMmoralMprincipleMwouldMresultMinMviolat
ingM another.MThreeMstepsMthatMshouldMbeMconsideredMwhenMevaluatingMethicalMdilemmasMare
:
(a) IdentifyMwhoMwillMbenefitMfromMtheMsituationM(often,MtheMmanagerMorMemployee)MandMhowMothers
MwillM beMharmedM(otherMemployees,MtheMcompany‘sMreputation,Mowners,Mcreditors,MandMtheMpublicMin

Mgeneral).

(b) IdentifyMtheMalternativeMcoursesMofMaction.
(c) ChooseMtheMalternativeMthatMisMtheMmostMethicalM–
MthatMwhichMyouMwouldMbeMproudMtoMhaveMreportedM inMtheMnewsMmedia.M Often,MthereMisMnoMoneMrig

htManswerMandMhardMchoicesMwillMneedMtoMbeMmade.M FollowingMstrongMethicalMpracticesMisMaMkeyMpa
rtMofMensuringMgoodMfinancialMreportingMbyMbusinessesMofM allMsizes.




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18. AccountingMfraudsMandMcasesMinvolvingMacademicMdishonestyMareMsimilarMinMmanyMrespects.MBothMinvolv
eM deceivingMothersMinManMattemptMtoMinfluenceMtheirMactionsMorMdecisions,MoftenMresultingMinMtemporary
M personalMgainMforMtheMdeceiver.MForMexample,MwhenManMaccountingMfraudMisMcommitted,Mfinancial Msta

tementM usersMmayMbeMmisledMintoMmakingMdecisionsMtheyMwouldn‘tMhaveMmadeMhadMtheMfraudMnotMocc
urredM(e.g.,M creditorsMmightMloanMmoneyMtoMtheMcompany,MinvestorsMmightMinvestMinMtheMcompany,MorMs
hareholdersM mightMrewardMtopMmanagersMwithMbigMbonuses).MWhenMacademicMdishonestyMisMcommitte
d,MinstructorsM mightMassignMaMhigherMgradeMthanMisMwarrantedMbyMtheMstudent‘sMindividualMcontribution
.MAnotherM similarityMisMthat,MasMaMconsequenceMofMtheMdeception,MinnocentMbystandersMmayMbeMadvers
elyMaffectedMbyM fraudMandMacademicMdishonesty.MFraudMmayMrequireMtheMcompanyMtoMchargeMhigher
MpricesMtoMcustomersMtoM coverMcostsMincurredMasMaMresultMofMtheMfraud.MAcademicMdishonestyMmayMlead

MtoMstricterMgradingMstandards,M withMsignificantMdeductionsMtakenMforMinadequateMdocumentationMofMs

ourcesMreferenced.M AMfinalMsimilarityM isMthatMifMfraudMandMacademicMdishonestyMareMultimatelyMuncove
red,MbothMareMlikelyMtoMleadMtoMadverseMlong-
M termMconsequencesMforMtheMperpetrator.M FraudstersMmayMbeMfined,Mimprisoned,MandMencounterManMa

bruptM endMtoMtheirMcareers.MStudentsMwhoMcheatMmayMbeMpenalizedMthroughMlowerMcourseMgradesMorM
expulsion,MM andMmightMfindMitMimpossibleMtoMobtainMacademicMreferencesMforMemploymentMapplication
s.

Authors'MRecommendedMSolutionMTimeM(TimeMinM minut
es)

Skills
Mini-exercises Exercises Problems ContinuingMCase
DevelopmentMCases
*
No. Time No. Time No. Time No. Time No. Time
1 3 1 10 CP1-1 45 1 20 1 45
2 11 2 10 CP1-2 10 2 20
3 12 3 15 CP1-3 60 3 30
4 6 4 25 CP1-4 5 4 30
5 6 5 25 PA1-1 45 5 20
6 6 6 10 PA1-2 10 6 30
7 6 7 15 PA1-3 50 7 45
8 4 8 10 PA1-4 45
9 4 9 20 PA1-5 50
10 3 10 10 PB1-1 45
11 3 11 3 PB1-2 10
12 6 12 3 PB1-3 45
13 6 PB1-4 10
14 6 PB1-5 50
15 6
16 12




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