SOLUTION MANUAL FOR hjhj hjhj
Fundamentals of Financial Accounting 7e Phillips
hjhj hjhj hjhj hjhj hjhj hjhj
Chapter 1-13 with Appendix C&D
Chapter hjhj1 hjhj
Business hjhjDecisions hjhjand hjhjFinancial hjhjAccounting
ANSWERS hjhjTO hjhjQUESTIONS
1. Accounting hjhjis hjhja hjhjsystem hjhjof hjhjanalyzing, hjhjrecording, hjhjand hjhjsummarizing hjhjthe hjhjresults hjhjof hjhja hjhj
business‘s hjhjactivities hjhjand hjhjthen hjhjreporting hjhjthem hjhjto hjhjdecision hjhjmakers. hjhj
2. An hjhjadvantage hjhjof hjhjoperating hjhjas hjhja hjhjsole hjhjproprietorship, hjhjrather hjhjthan hjhja hjhjcorporation, hjhjis
hjhjthat h j h j it hjhjis hjhjeasy hjhjto hjhjestablish. hjhjAnother hjhjadvantage hjhjis hjhjthat hjhjincome hjhjfrom hjhja hjhjsole
hjhjproprietorship hjhjis h j h j taxed hjhjonly hjhjonce hjhjin hjhjthe hjhjhands hjhjof hjhjthe hjhjindividual hjhjproprietor
hjhj(income hjhjfrom hjhja hjhj h j h j h j h j h j h j corporation hjhjis hjhjtaxed hjhjin hjhjthe hjhjcorporation hjhjand hjhjthen hjhjagain hjhjin
hjhjthe hjhjhands hjhjof hjhjthe hjhjindividual h j h j shareholder). hjhjA hjhjdisadvantage hjhjof hjhjoperating hjhjas hjhja
hjhjsole hjhjproprietorship, hjhjrather hjhjthan hjhja h j h j corporation, hjhjis hjhjthat hjhjthe hjhjindividual hjhjproprietor
hjhjcan hjhjbe hjhjheld hjhjresponsible hjhjfor hjhjthe hjhjdebts hjhjof h j h j the hjhjbusiness. hjhj
3. Financial hjhjaccounting hjhjfocuses hjhjon hjhjpreparing hjhjand hjhjusing hjhjthe hjhjfinancial hjhjstatements hjhjthat
h j h j are hjhjmade hjhjavailable hjhjto hjhjowners hjhjand hjhjexternal hjhjusers hjhjsuch hjhjas hjhjcustomers, hjhjcreditors,
hjhjand h j h j potential hjhjinvestors hjhjwho hjhjare hjhjinterested hjhjin hjhjreading hjhjthem. hjhjManagerial
hjhjaccounting h j h j focuses hjhjon hjhjother hjhjaccounting hjhjreports hjhjthat hjhjare hjhjnot hjhjreleased hjhjto hjhjthe
hjhjgeneral hjhjpublic, hjhjbut h j h j instead hjhjare hjhjprepared hjhjfor hjhjinternal hjhjdecision hjhjmaking hjhjand hjhjused
hjhjby hjhjemployees, h j h j supervisors, hjhjand hjhjmanagers hjhjwho hjhjrun hjhjthe hjhjcompany. hjhj
4. Financial hjhjreports hjhjare hjhjused hjhjby hjhjboth hjhjinternal hjhjand hjhjexternal hjhjgroups hjhjand hjhjindividuals. hjhjThe
h j h j internal hjhjgroups hjhjare hjhjcomprised hjhjof hjhjthe hjhjvarious hjhjmanagers hjhjof hjhjthe hjhjbusiness. hjhjThe
h j h j external hjhjgroups hjhjinclude hjhjinvestors, hjhjcreditors, hjhjgovernmental hjhjagencies, hjhjother
h j h j interested hjhjparties, hjhjand hjhjthe hjhjpublic hjhjat hjhjlarge. hjhj
5. The hjhjbusiness hjhjitself, hjhjnot hjhjthe hjhjindividual hjhjstockholders hjhjwho hjhjown hjhjthe hjhjbusiness, hjhjis hjhjviewed
h j h j as hjhjowning hjhjthe hjhjassets hjhjand hjhjowing hjhjthe hjhjliabilities hjhjon hjhjits hjhjbalance hjhjsheet. hjhjA hjhjbusiness‘s
h j h j balance hjhjsheet hjhjincludes hjhjthe hjhjassets, hjhjliabilities, hjhjand hjhjstockholders‘ hjhjequity hjhjof hjhjonly hjhjthat
h j h j business hjhjand hjhjnot hjhjthe hjhjpersonal hjhjassets, hjhjliabilities, hjhjand hjhjequity hjhjof hjhjthe hjhjstockholders.
hjhjThe h j h j financial hjhjstatements hjhjof hjhja hjhjcompany hjhjshow hjhjthe hjhjresults hjhjof hjhjthe hjhjbusiness
hjhjactivities hjhjof hjhj h j h j h j h j only hjhjthat hjhjcompany. hjhj
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
,Fundamentals hjhjof hjhjFinancial 1-1
hjhjAccounting, hjhj7/e
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
,6. (a) h j h j Operating hjhj– hjhjThese hjhjactivities hjhjare hjhjdirectly hjhjrelated hjhjto hjhjearning hjhjprofits. hjhjThey
hjhjinclude h j h j buying hjhjsupplies, hjhjmaking hjhjproducts, hjhjserving hjhjcustomers, hjhjcleaning hjhjthe
hjhjpremises, h j h j advertising, hjhjrenting hjhja hjhjbuilding, hjhjrepairing hjhjequipment, hjhjand hjhjobtaining
hjhjinsurance h j h j coverage. hjhj
(b) Investing hjhj– hjhjThese hjhjactivities hjhjinvolve hjhjbuying hjhjand hjhjselling hjhjproductive hjhjresources hjhjwith
h j h j long hjhjlives hjhj(such hjhjas hjhjbuildings, hjhjland, hjhjequipment, hjhjand hjhjtools), hjhjpurchasing hjhjinvestments,
h j h j and h j h j lending h j h j to h j h j others. hjhj
(c) Financinghjhj– hjhjAny hjhjborrowing hjhjfrom hjhjbanks, hjhjrepaying hjhjbank hjhjloans, hjhjreceiving
h j h j contributionsjhfromjhstockholders,jhorjhpayingjhdividendsjhtojhstockholdersjharejhconsidered
h j h j financing hjhjactivities. hjhj
7. The hjhjheading hjhjof hjhjeach hjhjof hjhjthe hjhjfour hjhjprimary hjhjfinancial hjhjstatements hjhjshould hjhjinclude hjhjthe
h j h j following: hjhj
(a) Name hjhjof hjhjthe hjhjbusiness hjhj
(b) Name hjhjof hjhjthe hjhjstatement hjhj
(c) Date hjhjof hjhjthe hjhjstatement, hjhjor hjhjthe hjhjperiod hjhjof hjhjtime hjhjthat hjhjthe hjhjstatement hjhjcovers hjhj
8. (a) h j h j The hjhjpurpose hjhj of hjhjthe hjhjbalance hjhjsheet hjhjis hjhjto hjhjreport hjhjthe hjhjfinancial hjhjposition
hjhj (assets, h j h j liabilities hjhjand hjhjstockholders‘ hjhjequity) hjhjof hjhja hjhjbusiness hjhjat hjhja hjhjpoint hjhjin hjhjtime.
hjhj
(b) The h j h j purpose h j h j of h j h j the h j h j income h j h j statement h j h j is h j h j to h j h j present
h j h j information h j h j about h j h j the h j h j revenues, hjhjexpenses, hjhjand hjhjnet hjhjincome hjhjof hjhja hjhjbusiness
hjhjfor hjhja hjhjspecified hjhjperiod hjhjof hjhjtime. hjhj
(c) The h j h j statement h j h j of h j h j retained h j h j earnings h j h j reports h j h j the h j h j way h j h j that h j h j net
h j h j income h j h j and h j h j the h j h j distribution h j h j of h j h j dividends h j h j affected h j h j the h j h j financial
h j h j position h j h j of h j h j the h j h j company h j h j during h j h j the h j h j period. hjhj
(d) The h j h j purpose h j h j of h j h j the h j h j statement h j h j of h j h j cash h j h j flows h j h j is h j h j to h j h j summarize h j h j how h j h j a
h j h j business‘s h j h j operating, h j h j investing, h j h j and h j h j financing h j h j activities h j h j caused h j h j its
h j h j cash h j h j balance h j h j to h j h j change h j h j over hjhja hjhjparticular hjhjperiod hjhjof hjhjtime. hjhj
9. The hjhjincome hjhjstatement, hjhjstatement hjhjof hjhjretained hjhjearnings, hjhjand hjhjstatement hjhjof hjhjcash hjhjflows
h j h j would hjhjbe hjhjdated hjhj―For hjhjthe hjhjYear hjhjEnded hjhjDecember hjhj31, hjhj2021,‖ hjhjbecause hjhjthey
hjhjreport hjhjthe h j h j inflows hjhjand hjhjoutflows hjhjof hjhjresources hjhjover hjhja hjhjperiod hjhjof hjhjtime. hjhjIn
hjhjcontrast, hjhjthe hjhjbalance h j h j sheet hjhjwould hjhjbe hjhjdated hjhj―At hjhjDecember hjhj31, hjhj2021,‖
hjhjbecause hjhjit hjhjrepresents hjhjthe hjhjassets, h j h j liabilities hjhjand hjhjstockholders‘ hjhjequity hjhjat hjhja
hjhjspecific hjhjdate. hjhj
10. Net hjhjincome hjhjis hjhjthe hjhjexcess hjhjof hjhjtotal hjhjrevenues hjhjover hjhjtotal hjhjexpenses. hjhjA hjhjnet hjhjloss hjhjoccurs
hjhjif h j h j total hjhjexpenses hjhjexceed hjhjtotal hjhjrevenues. hjhj
11. The hjhjaccounting hjhjequation hjhjfor hjhjthe hjhjbalance hjhjsheet hjhjis: hjhjAssets hjhj= hjhjLiabilities hjhj+
h j h j Stockholders‘ hjhjEquity. h j h j Assets hjhjare hjhjthe hjhjeconomic hjhjresources hjhjcontrolled hjhjby hjhjthe
h j h j company. hjhj h j h j Liabilities hjhjare hjhjamounts hjhjowed hjhjby hjhjthe hjhjbusiness. h j h j Stockholders‘ hjhjequity
hjhjis h j h j the hjhjowners‘ hjhjclaims hjhjto hjhjthe hjhjbusiness. hjhjIt hjhjincludes hjhjamounts hjhjcontributed hjhjto hjhjthe
hjhjbusiness h j h j (by hjhjinvestors hjhjthrough hjhjpurchasing hjhjthe hjhjcompany‘s hjhjstock) hjhjand hjhjthe hjhjamounts
hjhjearned h j h j and hjhjaccumulated hjhjthrough hjhjprofitable hjhjbusiness hjhjoperations. hjhj
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, Fundamentals hjhjof hjhjFinancial 1-2
hjhjAccounting, hjhj7/e
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Fundamentals of Financial Accounting 7e Phillips
hjhj hjhj hjhj hjhj hjhj hjhj
Chapter 1-13 with Appendix C&D
Chapter hjhj1 hjhj
Business hjhjDecisions hjhjand hjhjFinancial hjhjAccounting
ANSWERS hjhjTO hjhjQUESTIONS
1. Accounting hjhjis hjhja hjhjsystem hjhjof hjhjanalyzing, hjhjrecording, hjhjand hjhjsummarizing hjhjthe hjhjresults hjhjof hjhja hjhj
business‘s hjhjactivities hjhjand hjhjthen hjhjreporting hjhjthem hjhjto hjhjdecision hjhjmakers. hjhj
2. An hjhjadvantage hjhjof hjhjoperating hjhjas hjhja hjhjsole hjhjproprietorship, hjhjrather hjhjthan hjhja hjhjcorporation, hjhjis
hjhjthat h j h j it hjhjis hjhjeasy hjhjto hjhjestablish. hjhjAnother hjhjadvantage hjhjis hjhjthat hjhjincome hjhjfrom hjhja hjhjsole
hjhjproprietorship hjhjis h j h j taxed hjhjonly hjhjonce hjhjin hjhjthe hjhjhands hjhjof hjhjthe hjhjindividual hjhjproprietor
hjhj(income hjhjfrom hjhja hjhj h j h j h j h j h j h j corporation hjhjis hjhjtaxed hjhjin hjhjthe hjhjcorporation hjhjand hjhjthen hjhjagain hjhjin
hjhjthe hjhjhands hjhjof hjhjthe hjhjindividual h j h j shareholder). hjhjA hjhjdisadvantage hjhjof hjhjoperating hjhjas hjhja
hjhjsole hjhjproprietorship, hjhjrather hjhjthan hjhja h j h j corporation, hjhjis hjhjthat hjhjthe hjhjindividual hjhjproprietor
hjhjcan hjhjbe hjhjheld hjhjresponsible hjhjfor hjhjthe hjhjdebts hjhjof h j h j the hjhjbusiness. hjhj
3. Financial hjhjaccounting hjhjfocuses hjhjon hjhjpreparing hjhjand hjhjusing hjhjthe hjhjfinancial hjhjstatements hjhjthat
h j h j are hjhjmade hjhjavailable hjhjto hjhjowners hjhjand hjhjexternal hjhjusers hjhjsuch hjhjas hjhjcustomers, hjhjcreditors,
hjhjand h j h j potential hjhjinvestors hjhjwho hjhjare hjhjinterested hjhjin hjhjreading hjhjthem. hjhjManagerial
hjhjaccounting h j h j focuses hjhjon hjhjother hjhjaccounting hjhjreports hjhjthat hjhjare hjhjnot hjhjreleased hjhjto hjhjthe
hjhjgeneral hjhjpublic, hjhjbut h j h j instead hjhjare hjhjprepared hjhjfor hjhjinternal hjhjdecision hjhjmaking hjhjand hjhjused
hjhjby hjhjemployees, h j h j supervisors, hjhjand hjhjmanagers hjhjwho hjhjrun hjhjthe hjhjcompany. hjhj
4. Financial hjhjreports hjhjare hjhjused hjhjby hjhjboth hjhjinternal hjhjand hjhjexternal hjhjgroups hjhjand hjhjindividuals. hjhjThe
h j h j internal hjhjgroups hjhjare hjhjcomprised hjhjof hjhjthe hjhjvarious hjhjmanagers hjhjof hjhjthe hjhjbusiness. hjhjThe
h j h j external hjhjgroups hjhjinclude hjhjinvestors, hjhjcreditors, hjhjgovernmental hjhjagencies, hjhjother
h j h j interested hjhjparties, hjhjand hjhjthe hjhjpublic hjhjat hjhjlarge. hjhj
5. The hjhjbusiness hjhjitself, hjhjnot hjhjthe hjhjindividual hjhjstockholders hjhjwho hjhjown hjhjthe hjhjbusiness, hjhjis hjhjviewed
h j h j as hjhjowning hjhjthe hjhjassets hjhjand hjhjowing hjhjthe hjhjliabilities hjhjon hjhjits hjhjbalance hjhjsheet. hjhjA hjhjbusiness‘s
h j h j balance hjhjsheet hjhjincludes hjhjthe hjhjassets, hjhjliabilities, hjhjand hjhjstockholders‘ hjhjequity hjhjof hjhjonly hjhjthat
h j h j business hjhjand hjhjnot hjhjthe hjhjpersonal hjhjassets, hjhjliabilities, hjhjand hjhjequity hjhjof hjhjthe hjhjstockholders.
hjhjThe h j h j financial hjhjstatements hjhjof hjhja hjhjcompany hjhjshow hjhjthe hjhjresults hjhjof hjhjthe hjhjbusiness
hjhjactivities hjhjof hjhj h j h j h j h j only hjhjthat hjhjcompany. hjhj
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
,Fundamentals hjhjof hjhjFinancial 1-1
hjhjAccounting, hjhj7/e
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
,6. (a) h j h j Operating hjhj– hjhjThese hjhjactivities hjhjare hjhjdirectly hjhjrelated hjhjto hjhjearning hjhjprofits. hjhjThey
hjhjinclude h j h j buying hjhjsupplies, hjhjmaking hjhjproducts, hjhjserving hjhjcustomers, hjhjcleaning hjhjthe
hjhjpremises, h j h j advertising, hjhjrenting hjhja hjhjbuilding, hjhjrepairing hjhjequipment, hjhjand hjhjobtaining
hjhjinsurance h j h j coverage. hjhj
(b) Investing hjhj– hjhjThese hjhjactivities hjhjinvolve hjhjbuying hjhjand hjhjselling hjhjproductive hjhjresources hjhjwith
h j h j long hjhjlives hjhj(such hjhjas hjhjbuildings, hjhjland, hjhjequipment, hjhjand hjhjtools), hjhjpurchasing hjhjinvestments,
h j h j and h j h j lending h j h j to h j h j others. hjhj
(c) Financinghjhj– hjhjAny hjhjborrowing hjhjfrom hjhjbanks, hjhjrepaying hjhjbank hjhjloans, hjhjreceiving
h j h j contributionsjhfromjhstockholders,jhorjhpayingjhdividendsjhtojhstockholdersjharejhconsidered
h j h j financing hjhjactivities. hjhj
7. The hjhjheading hjhjof hjhjeach hjhjof hjhjthe hjhjfour hjhjprimary hjhjfinancial hjhjstatements hjhjshould hjhjinclude hjhjthe
h j h j following: hjhj
(a) Name hjhjof hjhjthe hjhjbusiness hjhj
(b) Name hjhjof hjhjthe hjhjstatement hjhj
(c) Date hjhjof hjhjthe hjhjstatement, hjhjor hjhjthe hjhjperiod hjhjof hjhjtime hjhjthat hjhjthe hjhjstatement hjhjcovers hjhj
8. (a) h j h j The hjhjpurpose hjhj of hjhjthe hjhjbalance hjhjsheet hjhjis hjhjto hjhjreport hjhjthe hjhjfinancial hjhjposition
hjhj (assets, h j h j liabilities hjhjand hjhjstockholders‘ hjhjequity) hjhjof hjhja hjhjbusiness hjhjat hjhja hjhjpoint hjhjin hjhjtime.
hjhj
(b) The h j h j purpose h j h j of h j h j the h j h j income h j h j statement h j h j is h j h j to h j h j present
h j h j information h j h j about h j h j the h j h j revenues, hjhjexpenses, hjhjand hjhjnet hjhjincome hjhjof hjhja hjhjbusiness
hjhjfor hjhja hjhjspecified hjhjperiod hjhjof hjhjtime. hjhj
(c) The h j h j statement h j h j of h j h j retained h j h j earnings h j h j reports h j h j the h j h j way h j h j that h j h j net
h j h j income h j h j and h j h j the h j h j distribution h j h j of h j h j dividends h j h j affected h j h j the h j h j financial
h j h j position h j h j of h j h j the h j h j company h j h j during h j h j the h j h j period. hjhj
(d) The h j h j purpose h j h j of h j h j the h j h j statement h j h j of h j h j cash h j h j flows h j h j is h j h j to h j h j summarize h j h j how h j h j a
h j h j business‘s h j h j operating, h j h j investing, h j h j and h j h j financing h j h j activities h j h j caused h j h j its
h j h j cash h j h j balance h j h j to h j h j change h j h j over hjhja hjhjparticular hjhjperiod hjhjof hjhjtime. hjhj
9. The hjhjincome hjhjstatement, hjhjstatement hjhjof hjhjretained hjhjearnings, hjhjand hjhjstatement hjhjof hjhjcash hjhjflows
h j h j would hjhjbe hjhjdated hjhj―For hjhjthe hjhjYear hjhjEnded hjhjDecember hjhj31, hjhj2021,‖ hjhjbecause hjhjthey
hjhjreport hjhjthe h j h j inflows hjhjand hjhjoutflows hjhjof hjhjresources hjhjover hjhja hjhjperiod hjhjof hjhjtime. hjhjIn
hjhjcontrast, hjhjthe hjhjbalance h j h j sheet hjhjwould hjhjbe hjhjdated hjhj―At hjhjDecember hjhj31, hjhj2021,‖
hjhjbecause hjhjit hjhjrepresents hjhjthe hjhjassets, h j h j liabilities hjhjand hjhjstockholders‘ hjhjequity hjhjat hjhja
hjhjspecific hjhjdate. hjhj
10. Net hjhjincome hjhjis hjhjthe hjhjexcess hjhjof hjhjtotal hjhjrevenues hjhjover hjhjtotal hjhjexpenses. hjhjA hjhjnet hjhjloss hjhjoccurs
hjhjif h j h j total hjhjexpenses hjhjexceed hjhjtotal hjhjrevenues. hjhj
11. The hjhjaccounting hjhjequation hjhjfor hjhjthe hjhjbalance hjhjsheet hjhjis: hjhjAssets hjhj= hjhjLiabilities hjhj+
h j h j Stockholders‘ hjhjEquity. h j h j Assets hjhjare hjhjthe hjhjeconomic hjhjresources hjhjcontrolled hjhjby hjhjthe
h j h j company. hjhj h j h j Liabilities hjhjare hjhjamounts hjhjowed hjhjby hjhjthe hjhjbusiness. h j h j Stockholders‘ hjhjequity
hjhjis h j h j the hjhjowners‘ hjhjclaims hjhjto hjhjthe hjhjbusiness. hjhjIt hjhjincludes hjhjamounts hjhjcontributed hjhjto hjhjthe
hjhjbusiness h j h j (by hjhjinvestors hjhjthrough hjhjpurchasing hjhjthe hjhjcompany‘s hjhjstock) hjhjand hjhjthe hjhjamounts
hjhjearned h j h j and hjhjaccumulated hjhjthrough hjhjprofitable hjhjbusiness hjhjoperations. hjhj
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, Fundamentals hjhjof hjhjFinancial 1-2
hjhjAccounting, hjhj7/e
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
