Solution Manual for Financial Accounting 11th Edition
Robert Libby, Patricia Libby, Complete Chapters 1 – 13
, TABLE OF CONTENTS
CHAPTER 1: Financial Statements and Business Decisions
CHAPTER 2: Investing and Financing Decisions and the Accounting System
CHAPTER 3: Operating Decisions and the Accounting System
CHAPTER 4: Adjustments, Financial Statements, and the Closing Process
CHAPTER 5: Communicating and Analyzing Accounting Information
CHAPTER 6: Reporting and Interpreting Sales Revenue, Receivables, and Cash
CHAPTER 7: Reporting and Interpreting Cost of Goods Sold and Inventory
CHAPTER 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural
Resources
CHAPTER 9: Reporting and Interpreting Liabilities
CHAPTER 10: Reporting and Interpreting Bond Securities
CHAPTER 11: Reporting and Interpreting Stockholders' Equity
CHAPTER 12: Statement of Cash Flows
CHAPTER 13: Analyzing Financial Statements
,Chapter 1 Financial Statements and Business
Decisions
ANSWERS TO QUESTIONS
1. Accounting is a system that collects and processes (analyzes, measures, and records)
financial information about an organization and reports that information to decision
makers.
2. Financial accounting involves preparation of the four basic financial statements and
related disclosures for external decision makers. Managerial accounting involves the
preparation of detailed plans, budgets, forecasts, and performance reports for internal
decision makers.
3. Financial reports are used by both internal and external groups and individuals. The
internal groups are comprised of the various managers of the entity. The external
groups include the owners, investors, creditors, governmental agencies, other
interested parties, and the public at large.
4. Investors purchase all or part of a business and hope to gain by receiving part of
what the company earns and/or selling their ownership interest in the company in
the future at a higher price than they paid. Creditors lend money to a company for a
specific length of time and hope to gain by charging interest on the loan.
, 5. In a society, each organization can be defined as a separate accounting entity. An
accounting entity is the organization for which financial data are to be collected.
Typical accounting entities are a business, a church, a governmental unit, a university
and other nonprofit organizations such as a hospital and a welfare organization. A
business typically is defined and treated as a separate entity because the owners,
creditors, investors, and other interested parties need to evaluate its performance and
its potential separately from other entities and from its owners.
6. Name of Statement Alternative Title
(a) Income Statement (a) Statement of Earnings; Statement of
Income; Statement of Operations
(b) Balance Sheet (b) Statement of Financial Position
(c) Cash Flow Statement (c) Statement of Cash Flows
7. The heading of each of the four required financial statements should include the
following:
(a) Name of the entity
(b) Name of the statement
(c) Date of the statement, or the period of time
(d) Unit of measure
8. (a) The purpose of the income statement is to present information about the
revenues, expenses, and the net income of an entity for a specified period of
time.
(b) The purpose of the balance sheet is to report the financial position of an entity at
a given date, that is, to report information about the assets, liabilities and
stockholders’ equity of the entity as of a specific date.
(c) The purpose of the statement of cash flows is to present information about the
flow of cash into the entity (sources), the flow of cash out of the entity (uses), and
the net increase or decrease in cash during the period.
(d) The statement of stockholders’ equity reports the changes in each of the
company’s stockholders’ equity accounts during the accounting period,
including issue and repurchase of stock and the way that net income and
distribution of dividends affected the retained earnings of the company during
that period.
9. The income statement and the statement of cash flows are dated ―For the Year
Ended December 31‖ because they report the inflows and outflows of resources
during a period of time. In contrast, the balance sheet is dated ―At December 31‖
because it represents the resources, obligations, and stockholders’ equity at a
specific date.
Robert Libby, Patricia Libby, Complete Chapters 1 – 13
, TABLE OF CONTENTS
CHAPTER 1: Financial Statements and Business Decisions
CHAPTER 2: Investing and Financing Decisions and the Accounting System
CHAPTER 3: Operating Decisions and the Accounting System
CHAPTER 4: Adjustments, Financial Statements, and the Closing Process
CHAPTER 5: Communicating and Analyzing Accounting Information
CHAPTER 6: Reporting and Interpreting Sales Revenue, Receivables, and Cash
CHAPTER 7: Reporting and Interpreting Cost of Goods Sold and Inventory
CHAPTER 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural
Resources
CHAPTER 9: Reporting and Interpreting Liabilities
CHAPTER 10: Reporting and Interpreting Bond Securities
CHAPTER 11: Reporting and Interpreting Stockholders' Equity
CHAPTER 12: Statement of Cash Flows
CHAPTER 13: Analyzing Financial Statements
,Chapter 1 Financial Statements and Business
Decisions
ANSWERS TO QUESTIONS
1. Accounting is a system that collects and processes (analyzes, measures, and records)
financial information about an organization and reports that information to decision
makers.
2. Financial accounting involves preparation of the four basic financial statements and
related disclosures for external decision makers. Managerial accounting involves the
preparation of detailed plans, budgets, forecasts, and performance reports for internal
decision makers.
3. Financial reports are used by both internal and external groups and individuals. The
internal groups are comprised of the various managers of the entity. The external
groups include the owners, investors, creditors, governmental agencies, other
interested parties, and the public at large.
4. Investors purchase all or part of a business and hope to gain by receiving part of
what the company earns and/or selling their ownership interest in the company in
the future at a higher price than they paid. Creditors lend money to a company for a
specific length of time and hope to gain by charging interest on the loan.
, 5. In a society, each organization can be defined as a separate accounting entity. An
accounting entity is the organization for which financial data are to be collected.
Typical accounting entities are a business, a church, a governmental unit, a university
and other nonprofit organizations such as a hospital and a welfare organization. A
business typically is defined and treated as a separate entity because the owners,
creditors, investors, and other interested parties need to evaluate its performance and
its potential separately from other entities and from its owners.
6. Name of Statement Alternative Title
(a) Income Statement (a) Statement of Earnings; Statement of
Income; Statement of Operations
(b) Balance Sheet (b) Statement of Financial Position
(c) Cash Flow Statement (c) Statement of Cash Flows
7. The heading of each of the four required financial statements should include the
following:
(a) Name of the entity
(b) Name of the statement
(c) Date of the statement, or the period of time
(d) Unit of measure
8. (a) The purpose of the income statement is to present information about the
revenues, expenses, and the net income of an entity for a specified period of
time.
(b) The purpose of the balance sheet is to report the financial position of an entity at
a given date, that is, to report information about the assets, liabilities and
stockholders’ equity of the entity as of a specific date.
(c) The purpose of the statement of cash flows is to present information about the
flow of cash into the entity (sources), the flow of cash out of the entity (uses), and
the net increase or decrease in cash during the period.
(d) The statement of stockholders’ equity reports the changes in each of the
company’s stockholders’ equity accounts during the accounting period,
including issue and repurchase of stock and the way that net income and
distribution of dividends affected the retained earnings of the company during
that period.
9. The income statement and the statement of cash flows are dated ―For the Year
Ended December 31‖ because they report the inflows and outflows of resources
during a period of time. In contrast, the balance sheet is dated ―At December 31‖
because it represents the resources, obligations, and stockholders’ equity at a
specific date.
