Solution Manual for Financial Accounting 11th EditionR
v v v v v v v
obert Libby, Patricia Libby, Frank Hodge
v v v v v
,SOLUTION MANUAL FOR v v
Financial Accounting 11th Edition Robert Libby,Patricia
v v v v v v
v Libby, Frank Hodge Chapter 1-13
v v v v
With Appendix A Solution Manual &M
v v v v v v
BA Supplement Solutions Manual
v v v
Chapter 1 v
Financial Statements and Business Decisions
v v v v
ANSWERS TO QUESTIONS v v
1. Accountingvisvavsystemvthatvcollectsvandvprocessesv(analyzes,vmeasures,vandvrecor
ds)vfinancialvinformationvaboutvanvorganizationvandvreportsvthatvinformationvtovdecisi
onvmakers.
2. Financialvaccountingvinvolvesvpreparationvofvthevfourvbasicvfinancialvstatementsvandvr
elatedvdisclosuresvforvexternalvdecisionvmakers.vManagerialvaccountingvinvolvesvthev
preparationvofvdetailedvplans,vbudgets,vforecasts,vandvperformancevreportsvforvintern
alvdecisionvmakers.
3. Financialvreportsvarevusedvbyvbothvinternalvandvexternalvgroupsvandvindividuals.vThevin
ternalvgroupsvarevcomprisedvofvthevvariousvmanagersvofvtheventity.vThevexternalvgrou
psvincludevthevowners,vinvestors,vcreditors,vgovernmentalvagencies,vothervinterestedv
parties,vandvthevpublicvatvlarge.
4. Investorsvpurchasevallvorvpartvofvavbusinessvandvhopevtovgainvbyvreceivingvpartvofvwh
atvthevcompanyvearnsvand/orvsellingvtheirvownershipvinterestvinvthevcompanyvinvthevfu
turevatvavhighervpricevthanvtheyvpaid.vvCreditorsvlendvmoneyvtovavcompanyvforvavspecifi
cvlengthvofvtimevandvhopevtovgainvbyvchargingvinterestvonvthevloan.
Financialv Accounting,v11/e 2-1
©vMcGrawvHillvLLC.v Allvrightsvreserved.vNov reproductionv orv distributionvwithoutvthevpriorvwrittenv consentvofvMcGrawvHillv
LLC.
,5. Invavsociety,veachvorganizationvcanvbevdefinedvasvavseparatevaccountingventity.vAnvac
countingventityvisvthevorganizationvforvwhichvfinancialvdatavarevtovbevcollected.vTypicalv
accountingventitiesvarevavbusiness,vavchurch,vavgovernmentalvunit,vavuniversityvandvot
hervnonprofitvorganizationsvsuchvasvavhospitalvandvavwelfarevorganization.vAvbusinessv
typicallyvisvdefinedvandvtreatedvasvavseparateventityvbecausevthevowners,vcreditors,vin
vestors,vandvothervinterestedvpartiesvneedvtovevaluatevitsvperformancevandvitsvpotenti
alvseparatelyvfromvotherventitiesvandvfromvitsvowners.
6. NamevofvStatement AlternativevTitle
(a) IncomevStatement (a)v StatementvofvEarnings;vStatementvof
Income;vStatementvofvOperations
(b) BalancevSheet (b)v StatementvofvFinancialvPosition
(c) CashvFlowvStatement (c)v StatementvofvCashvFlows
7. Thevheadingvofveachvofvthevfourvrequiredvfinancialvstatementsvshouldvincludevthevfo
llowing:
(a) Namevofvtheventity
(b) Namevofvthevstatement
(c) Datevofvthevstatement,vorvthevperiodvofvtime
(d) Unitvofvmeasure
8. (a)
Thevpurposevofvthevincomevstatementvisvtovpresentvinformationvaboutvthevr
evenues,vexpenses,vandvthevnetvincomevofvanventityvforvavspecifiedvperiodvofvti
me.
(b) Thevpurposevofvthevbalancevsheetvisvtovreportvthevfinancialvpositionvofvanventityvatv
avgivenvdate,vthatvis,vtovreportvinformationvaboutvthevassets,vliabilitiesvandvstockh
olders’vequityvofvtheventityvasvofvavspecificvdate.
(c) Thevpurposevofvthevstatementvofvcashvflowsvisvtovpresentvinformationvaboutvthevfl
owvofvcashvintovtheventityv(sources),vthevflowvofvcashvoutvofvtheventityv(uses),vandv
thevnetvincreasevorvdecreasevinvcashvduringvthevperiod.
(d) Thevstatementvofvstockholders’vequityvreportsvthevchangesvinveachvofvthevcomp
any’svstockholders’vequityvaccountsvduringvthevaccountingvperiod,vincludingviss
uevandvrepurchasevofvstockvandvthevwayvthatvnetvincomevandvdistributionvofvdivi
dendsvaffectedvthevretainedvearningsvofvthevcompanyvduringvthatvperiod.
9. Thevincomevstatementvandvthevstatementvofvcashvflowsvarevdatedv―ForvthevYearvEn
dedvDecemberv31‖vbecausevtheyvreportvthevinflowsvandvoutflowsvofvresourcesvduring
vavperiodv ofvtime.vInvcontrast,vthevbalancev sheetvisvdatedv―Atv Decemberv31‖vbecause
vitv representsvthevresources,vobligations,v andvstockholders’vequityvatvavspecificvdate.
2-2 SolutionsvManual
©vMcGrawvHillvLLC.v Allvrightsvreserved.vNov reproductionv orv distributionvwithoutvthevpriorvwrittenv consentvofvMcGrawvHillv
LLC.
, 10. Assetsvarevimportantvtovcreditorsvandvinvestorsvbecausevassetsvprovidevavbasisvforvju
dgingvwhethervsufficientvresourcesvarevavailablevtovoperatevthevcompany.v Assetsvarev
alsovimportantvbecausevtheyvcouldvbevsoldvforvcashvinvtheveventvthevcompanyvgoesvo
utvofvbusiness.vLiabilitiesvarevimportantvtovcreditorsvandvinvestorsvbecausevthevcomp
anyvmustvbevablevtov generatevsufficientvcashvfromvoperationsvorvfurthervborrowingvtov
meetvthevpaymentsvrequiredvbyvdebtvagreements.vIfvavbusinessvdoesvnotvpayvitsvcredi
tors,vthevlawvmayvgivevthevcreditorsvthevrightvtovforcevthevsalevofvassetsvsufficientvtovm
eetvtheirvclaims.
11. Netvincomevisvthevexcessvofvtotalvrevenuesvovervtotalvexpenses.vNetvlossvisvthevex
cessvofvtotalvexpensesvovervtotalvrevenues.
12. ThevequationvforvthevincomevstatementvisvRevenuesv-
vExpensesv =vNetvIncomev (orv NetvLossvifvthevamountvisvnegative).vThus,vthevthreevmaj
orvitemsvreportedvonvthevincomevstatementvarev(1)vrevenues,v(2)vexpenses,vandv(3)v
netvincome.
13. Thevequationvforvthevbalancevsheetv(alsovknownvasvthevbasicvaccountingvequation)vis:
vAssetsv=vLiabilitiesv +vStockholders’vEquity.v Assetsvarevthevprobablev(expected)vfutur
eveconomicvbenefitsvownedvbyvtheventityvasvavresultvofvpastvtransactions.vTheyvarevthe
v resourcesvownedvbyvthevbusinessvatvavgivenvpointv invtimevsuchvasvcash,v receivables,v
inventory,vmachinery,vbuildings,vland,vandvpatents.vLiabilitiesvarevprobablev(expected
)vdebtsvorvobligationsvofvtheventityvasvavresultvofvpastvtransactionsvthatvwillvbevpaidvwith
vassetsvorvservicesv invthevfuture.vTheyv arevthevobligationsvofvtheventityv suchvasvaccoun
tsvpayable,vnotesvpayable,vandvbondsvpayable.vStockholders’vequityvisvfinancingvprov
idedvbyvownersvofvthevbusinessvandvoperations.vItvisvthevclaimvofvthevownersvtovthevass
etsvofvthevbusinessvaftervthevcreditors’vclaimsvhavevbeenvsatisfied.vItvmayvbevthoughtvo
fvasvthevresidualvinterestvbecausevitvrepresentsvassetsvminusvliabilities.
14. Thevequationvforvthevstatementvofvcashvflowsvis:vCashvflowsvfromvoperatingvactivities
+vCashvflowsvfromvinvestingvactivitiesv+vCashvflowsvfromvfinancingvactivitiesv=vChan
gevinvcashvforvthevperiod.vThevnetvcashvflowsvforvthevperiodvrepresentvthevincreasev
orvdecreasevinvcashvthatvoccurredvduringvthevperiod.vCashvflowsvfromvoperatingvact
ivitiesvarevcashvflowsvdirectlyvrelatedvtovearningvincomev(normalvbusinessvactivityvin
cludingvinterestvpaidvandvincomevtaxesvpaid).vCashvflowsvfromvinvestingvactivitiesvin
cludevcashvflowsvthatvarevrelatedvtovthevacquisitionvorvsalevofvproductivevassetsvuse
dvbyvthevcompany.vCashvflowsvfromvfinancingvactivitiesvarevdirectlyvrelatedvtovthevfin
ancingvofvtheventerprisevitself.
15. Thevretainedvearningsvequationvis:vBeginningvRetainedvEarningsv+vNetvIncomev-
vDividendsv=vEndingv RetainedvEarnings.vItvbeginsv withvbeginning-of-the-
yearvRetainedvEarningsvwhichvisvthevpriorvyear’svendingvretainedvearningsvreporte
dvonvthevbalancevsheet.vThevcurrentvyear'svNetvIncomev reportedvonvthevincomevstat
ementvisvaddedvandvthevcurrentvyear'svDividendsvarevsubtractedvfromvthisvamount.v
ThevendingvRetainedvEarningsvamountvisvreportedvonvthevend-of-
periodvbalancevsheet.
FinancialvAccounting,v11/e 2-3
©vMcGrawvHillvLLC.v Allvrightsvreserved.vNov reproductionv orv distributionvwithoutvthevpriorvwrittenv consentvofvMcGrawvHillv
LLC.
v v v v v v v
obert Libby, Patricia Libby, Frank Hodge
v v v v v
,SOLUTION MANUAL FOR v v
Financial Accounting 11th Edition Robert Libby,Patricia
v v v v v v
v Libby, Frank Hodge Chapter 1-13
v v v v
With Appendix A Solution Manual &M
v v v v v v
BA Supplement Solutions Manual
v v v
Chapter 1 v
Financial Statements and Business Decisions
v v v v
ANSWERS TO QUESTIONS v v
1. Accountingvisvavsystemvthatvcollectsvandvprocessesv(analyzes,vmeasures,vandvrecor
ds)vfinancialvinformationvaboutvanvorganizationvandvreportsvthatvinformationvtovdecisi
onvmakers.
2. Financialvaccountingvinvolvesvpreparationvofvthevfourvbasicvfinancialvstatementsvandvr
elatedvdisclosuresvforvexternalvdecisionvmakers.vManagerialvaccountingvinvolvesvthev
preparationvofvdetailedvplans,vbudgets,vforecasts,vandvperformancevreportsvforvintern
alvdecisionvmakers.
3. Financialvreportsvarevusedvbyvbothvinternalvandvexternalvgroupsvandvindividuals.vThevin
ternalvgroupsvarevcomprisedvofvthevvariousvmanagersvofvtheventity.vThevexternalvgrou
psvincludevthevowners,vinvestors,vcreditors,vgovernmentalvagencies,vothervinterestedv
parties,vandvthevpublicvatvlarge.
4. Investorsvpurchasevallvorvpartvofvavbusinessvandvhopevtovgainvbyvreceivingvpartvofvwh
atvthevcompanyvearnsvand/orvsellingvtheirvownershipvinterestvinvthevcompanyvinvthevfu
turevatvavhighervpricevthanvtheyvpaid.vvCreditorsvlendvmoneyvtovavcompanyvforvavspecifi
cvlengthvofvtimevandvhopevtovgainvbyvchargingvinterestvonvthevloan.
Financialv Accounting,v11/e 2-1
©vMcGrawvHillvLLC.v Allvrightsvreserved.vNov reproductionv orv distributionvwithoutvthevpriorvwrittenv consentvofvMcGrawvHillv
LLC.
,5. Invavsociety,veachvorganizationvcanvbevdefinedvasvavseparatevaccountingventity.vAnvac
countingventityvisvthevorganizationvforvwhichvfinancialvdatavarevtovbevcollected.vTypicalv
accountingventitiesvarevavbusiness,vavchurch,vavgovernmentalvunit,vavuniversityvandvot
hervnonprofitvorganizationsvsuchvasvavhospitalvandvavwelfarevorganization.vAvbusinessv
typicallyvisvdefinedvandvtreatedvasvavseparateventityvbecausevthevowners,vcreditors,vin
vestors,vandvothervinterestedvpartiesvneedvtovevaluatevitsvperformancevandvitsvpotenti
alvseparatelyvfromvotherventitiesvandvfromvitsvowners.
6. NamevofvStatement AlternativevTitle
(a) IncomevStatement (a)v StatementvofvEarnings;vStatementvof
Income;vStatementvofvOperations
(b) BalancevSheet (b)v StatementvofvFinancialvPosition
(c) CashvFlowvStatement (c)v StatementvofvCashvFlows
7. Thevheadingvofveachvofvthevfourvrequiredvfinancialvstatementsvshouldvincludevthevfo
llowing:
(a) Namevofvtheventity
(b) Namevofvthevstatement
(c) Datevofvthevstatement,vorvthevperiodvofvtime
(d) Unitvofvmeasure
8. (a)
Thevpurposevofvthevincomevstatementvisvtovpresentvinformationvaboutvthevr
evenues,vexpenses,vandvthevnetvincomevofvanventityvforvavspecifiedvperiodvofvti
me.
(b) Thevpurposevofvthevbalancevsheetvisvtovreportvthevfinancialvpositionvofvanventityvatv
avgivenvdate,vthatvis,vtovreportvinformationvaboutvthevassets,vliabilitiesvandvstockh
olders’vequityvofvtheventityvasvofvavspecificvdate.
(c) Thevpurposevofvthevstatementvofvcashvflowsvisvtovpresentvinformationvaboutvthevfl
owvofvcashvintovtheventityv(sources),vthevflowvofvcashvoutvofvtheventityv(uses),vandv
thevnetvincreasevorvdecreasevinvcashvduringvthevperiod.
(d) Thevstatementvofvstockholders’vequityvreportsvthevchangesvinveachvofvthevcomp
any’svstockholders’vequityvaccountsvduringvthevaccountingvperiod,vincludingviss
uevandvrepurchasevofvstockvandvthevwayvthatvnetvincomevandvdistributionvofvdivi
dendsvaffectedvthevretainedvearningsvofvthevcompanyvduringvthatvperiod.
9. Thevincomevstatementvandvthevstatementvofvcashvflowsvarevdatedv―ForvthevYearvEn
dedvDecemberv31‖vbecausevtheyvreportvthevinflowsvandvoutflowsvofvresourcesvduring
vavperiodv ofvtime.vInvcontrast,vthevbalancev sheetvisvdatedv―Atv Decemberv31‖vbecause
vitv representsvthevresources,vobligations,v andvstockholders’vequityvatvavspecificvdate.
2-2 SolutionsvManual
©vMcGrawvHillvLLC.v Allvrightsvreserved.vNov reproductionv orv distributionvwithoutvthevpriorvwrittenv consentvofvMcGrawvHillv
LLC.
, 10. Assetsvarevimportantvtovcreditorsvandvinvestorsvbecausevassetsvprovidevavbasisvforvju
dgingvwhethervsufficientvresourcesvarevavailablevtovoperatevthevcompany.v Assetsvarev
alsovimportantvbecausevtheyvcouldvbevsoldvforvcashvinvtheveventvthevcompanyvgoesvo
utvofvbusiness.vLiabilitiesvarevimportantvtovcreditorsvandvinvestorsvbecausevthevcomp
anyvmustvbevablevtov generatevsufficientvcashvfromvoperationsvorvfurthervborrowingvtov
meetvthevpaymentsvrequiredvbyvdebtvagreements.vIfvavbusinessvdoesvnotvpayvitsvcredi
tors,vthevlawvmayvgivevthevcreditorsvthevrightvtovforcevthevsalevofvassetsvsufficientvtovm
eetvtheirvclaims.
11. Netvincomevisvthevexcessvofvtotalvrevenuesvovervtotalvexpenses.vNetvlossvisvthevex
cessvofvtotalvexpensesvovervtotalvrevenues.
12. ThevequationvforvthevincomevstatementvisvRevenuesv-
vExpensesv =vNetvIncomev (orv NetvLossvifvthevamountvisvnegative).vThus,vthevthreevmaj
orvitemsvreportedvonvthevincomevstatementvarev(1)vrevenues,v(2)vexpenses,vandv(3)v
netvincome.
13. Thevequationvforvthevbalancevsheetv(alsovknownvasvthevbasicvaccountingvequation)vis:
vAssetsv=vLiabilitiesv +vStockholders’vEquity.v Assetsvarevthevprobablev(expected)vfutur
eveconomicvbenefitsvownedvbyvtheventityvasvavresultvofvpastvtransactions.vTheyvarevthe
v resourcesvownedvbyvthevbusinessvatvavgivenvpointv invtimevsuchvasvcash,v receivables,v
inventory,vmachinery,vbuildings,vland,vandvpatents.vLiabilitiesvarevprobablev(expected
)vdebtsvorvobligationsvofvtheventityvasvavresultvofvpastvtransactionsvthatvwillvbevpaidvwith
vassetsvorvservicesv invthevfuture.vTheyv arevthevobligationsvofvtheventityv suchvasvaccoun
tsvpayable,vnotesvpayable,vandvbondsvpayable.vStockholders’vequityvisvfinancingvprov
idedvbyvownersvofvthevbusinessvandvoperations.vItvisvthevclaimvofvthevownersvtovthevass
etsvofvthevbusinessvaftervthevcreditors’vclaimsvhavevbeenvsatisfied.vItvmayvbevthoughtvo
fvasvthevresidualvinterestvbecausevitvrepresentsvassetsvminusvliabilities.
14. Thevequationvforvthevstatementvofvcashvflowsvis:vCashvflowsvfromvoperatingvactivities
+vCashvflowsvfromvinvestingvactivitiesv+vCashvflowsvfromvfinancingvactivitiesv=vChan
gevinvcashvforvthevperiod.vThevnetvcashvflowsvforvthevperiodvrepresentvthevincreasev
orvdecreasevinvcashvthatvoccurredvduringvthevperiod.vCashvflowsvfromvoperatingvact
ivitiesvarevcashvflowsvdirectlyvrelatedvtovearningvincomev(normalvbusinessvactivityvin
cludingvinterestvpaidvandvincomevtaxesvpaid).vCashvflowsvfromvinvestingvactivitiesvin
cludevcashvflowsvthatvarevrelatedvtovthevacquisitionvorvsalevofvproductivevassetsvuse
dvbyvthevcompany.vCashvflowsvfromvfinancingvactivitiesvarevdirectlyvrelatedvtovthevfin
ancingvofvtheventerprisevitself.
15. Thevretainedvearningsvequationvis:vBeginningvRetainedvEarningsv+vNetvIncomev-
vDividendsv=vEndingv RetainedvEarnings.vItvbeginsv withvbeginning-of-the-
yearvRetainedvEarningsvwhichvisvthevpriorvyear’svendingvretainedvearningsvreporte
dvonvthevbalancevsheet.vThevcurrentvyear'svNetvIncomev reportedvonvthevincomevstat
ementvisvaddedvandvthevcurrentvyear'svDividendsvarevsubtractedvfromvthisvamount.v
ThevendingvRetainedvEarningsvamountvisvreportedvonvthevend-of-
periodvbalancevsheet.
FinancialvAccounting,v11/e 2-3
©vMcGrawvHillvLLC.v Allvrightsvreserved.vNov reproductionv orv distributionvwithoutvthevpriorvwrittenv consentvofvMcGrawvHillv
LLC.
