SolutioniManual
Fundamentals iOf iFinancial iAccounting i6th i Edition i iBy
iPhillips iRobert iAll iChapters i(1-13) iCovered
, TABLE OFCONTENT
i i
CHAPTER 1: Business Decisions and Financial
i i i i i
iAccounting CHAPTER 2: The Balance Sheet
i i i i i
CHAPTER 3: The Income Statement
i i i i
CHAPTER 4: Adjustments, Financial Statements, and Financial
i i i i i i
iResults CHAPTER 5: Fraud, Internal Control, and Cash
i i i i i i i
CHAPTER 6: Merchandising Operations and the Multi-step Income
i i i i i i i
iStatement i CHAPTER 7: Inventory and Cost of Goods Sold
i i i i i i i
CHAPTER 8: Receivables, Bad Debt Expense, and Interest
i i i i i i i
iRevenue CHAPTER 9: Long-Lived Tangible and Intangible
i i i i i i
iAssets
CHAPTER 10: Liabilities
i i
CHAPTER 11: Shareholders' Equity
i i i
i CHAPTER 12: Statement of Cash
i i i i
iFlows
CHAPTER 13: Measuring and Evaluating Financial Performance
i i i i i i
,Chapter1 i
Business Decisions and Financial Accounting
i i i i
ANSWERS iTO iQUESTIONS
1. Accounting iis ia isystem iof ianalyzing, irecording, iand isummarizing ithe iresults iof ia
business‘s iactivities iand ithen ireporting ithem ito idecision imakers.
2. An iadvantage iof ioperating ias ia isole iproprietorship, irather ithan ia icorporation, iis ithat iit iis
i easy ito i establish. iAnother iadvantage iis ithat iincome ifrom ia isole iproprietorship iis
itaxed i only ionce iin ithe i hands iof ithe iindividual iproprietor i(income ifrom ia icorporation
iis itaxed iin i the icorporation iand ithen i again iin ithe ihands iof ithe iindividual iproprietor).
iA idisadvantage i of ioperating ias ia isole i proprietorship, irather ithan ia icorporation, iis
ithat ithe iindividual i proprietor ican ibe iheld iresponsible i for ithe idebts iof ithe ibusiness.
3. Financial iaccounting ifocuses ion ipreparing iand iusing ithe ifinancial istatements ithat iare
i made i available ito iowners iand iexternal iusers isuch ias icustomers, icreditors, iand
ipotential i investors iwho i are iinterested iin ireading ithem. iManagerial iaccounting
ifocuses ion iother i accounting ireports ithat i are inot ireleased ito ithe igeneral ipublic, ibut
iinstead iare iprepared i and iused iby iemployees, i supervisors, iand imanagers iwho irun
ithe icompany.
4. Financial ireports iare iused iby iboth iinternal iand iexternal igroups iand iindividuals. iThe
i internal i groups iare icomprised iof ithe ivarious imanagers iof ithe ibusiness. iThe
iexternal i groups iinclude i investors, icreditors, igovernmental iagencies, iother
iinterested iparties, iand i the ipublic iat ilarge.
5. The ibusiness iitself, inot ithe iindividual ishareholders iwho iown ithe ibusiness, iis iviewed ias
i owning ithe i assets iand iowing ithe iliabilities ion iits ibalance isheet. iA ibusiness‘s ibalance
i sheet iincludes ithe iassets, i liabilities, iand ishareholders‘ iequity iof ionly ithat ibusiness iand
i not ithe ipersonal iassets, iliabilities, iand i equity iof ithe ishareholders. i The ifinancial
i statements iof ia icompany ishow ithe iresults iof ithe ibusiness i activities iof ionly ithat
icompany.
6. (a) i Operating i– iThese iactivities iare idirectly irelated ito iearning iprofits. iThey iinclude
ibuying i supplies, imaking iproducts, iserving icustomers, icleaning ithe ipremises,
iadvertising, irenting i i a ibuilding, i repairing iequipment, iand iobtaining iinsurance
icoverage.
, (b) Investing i– iThese iactivities iinvolve ibuying iand iselling iproductive iresources iwith
ilong i lives i(such i as ibuildings, iland, iequipment, iand itools), ipurchasing iinvestments,
iand ilending i to iothers.
(c) Financing i– iAny iborrowing ifrom ibanks, irepaying ibank iloans, ireceiving
i contributions ifrom i shareholders, ior ipaying idividends ito ishareholders iare
iconsidered i financing iactivities.
7. The iheading iof ieach iof ithe ifour iprimary ifinancial istatements ishould iinclude ithe ifollowing:
(a) Name iof ithe ibusiness
(b) Name iof ithe istatement
(c) Date iof ithe istatement, ior ithe iperiod iof itime
8. (a) i The ipurpose iof ithe ibalance isheet iis ito ireport ithe ifinancial iposition i(assets, i liabilities
i and
shareholders‘ iequity) iof ia ibusiness iat ia ipoint iin itime.
(b) The ipurpose iof ithe iincome istatement iis ito ipresent iinformation iabout ithe irevenues,
i expenses, i and inet iincome iof ia ibusiness ifor ia ispecified iperiod iof itime.
(c) The istatement iof iretained iearnings ireports ithe iway ithat inet iincome iand ithe
i distribution iof i dividends iaffected ithe ifinancial iposition iof ithe icompany iduring ithe
iperiod.
(d) i The ipurpose iof ithe istatement iof icash iflows iis ito isummarize ihow ia ibusiness‘s
i operating, i investing, iand ifinancing iactivities icaused iits icash ibalance ito ichange iover ia
i particular iperiod iof i time.
9. The iincome istatement, istatement iof iretained iearnings, iand istatement iof icash iflows iwould i be
idated
―ForitheiYear iEnded iDecemberi31,i2020,‖ibecauseithey ireportitheiinflowsiand i outflows iof
i resources iduring ia iperiod iof itime. iIn icontrast, ithe ibalance isheet iwould ibe i datedi―At
iDecember i 31,i2020,‖ibecauseiitirepresentsitheiassets,iliabilities iand i shareholders‘ iequity iat
ia ispecific idate.
10. Net iincome iis ithe iexcess iof itotal irevenues iover itotal iexpenses. iA inet iloss ioccurs iif itotal
i expenses i exceed itotal irevenues.
11. The iaccounting iequation ifor ithe ibalance isheet iis: iAssets i= iLiabilities i+ iShareholders‘
i Equity. i Assets iare ithe ieconomic iresources icontrolled iby ithe icompany. Liabilities
iare i amounts iowed iby ithe ibusiness. i Shareholders‘ iequity iis ithe iowners‘ iclaims ito
ithe i business. iIt i includes iamounts icontributed ito ithe ibusiness i(by iinvestors ithrough
i purchasing ithe icompany‘s i shares) iand ithe iamounts iearned iand iaccumulated ithrough
i profitable ibusiness ioperations.
12. The iequation ifor ithe iincome istatement iis iRevenues i– iExpenses i= iNet iIncome.
i Revenues iare i increases iin ia icompany‘s iresources, iarising iprimarily ifrom iits
ioperating i activities. i Expenses iare i decreases iin ia icompany‘s iresources, iarising
Fundamentals iOf iFinancial iAccounting i6th i Edition i iBy
iPhillips iRobert iAll iChapters i(1-13) iCovered
, TABLE OFCONTENT
i i
CHAPTER 1: Business Decisions and Financial
i i i i i
iAccounting CHAPTER 2: The Balance Sheet
i i i i i
CHAPTER 3: The Income Statement
i i i i
CHAPTER 4: Adjustments, Financial Statements, and Financial
i i i i i i
iResults CHAPTER 5: Fraud, Internal Control, and Cash
i i i i i i i
CHAPTER 6: Merchandising Operations and the Multi-step Income
i i i i i i i
iStatement i CHAPTER 7: Inventory and Cost of Goods Sold
i i i i i i i
CHAPTER 8: Receivables, Bad Debt Expense, and Interest
i i i i i i i
iRevenue CHAPTER 9: Long-Lived Tangible and Intangible
i i i i i i
iAssets
CHAPTER 10: Liabilities
i i
CHAPTER 11: Shareholders' Equity
i i i
i CHAPTER 12: Statement of Cash
i i i i
iFlows
CHAPTER 13: Measuring and Evaluating Financial Performance
i i i i i i
,Chapter1 i
Business Decisions and Financial Accounting
i i i i
ANSWERS iTO iQUESTIONS
1. Accounting iis ia isystem iof ianalyzing, irecording, iand isummarizing ithe iresults iof ia
business‘s iactivities iand ithen ireporting ithem ito idecision imakers.
2. An iadvantage iof ioperating ias ia isole iproprietorship, irather ithan ia icorporation, iis ithat iit iis
i easy ito i establish. iAnother iadvantage iis ithat iincome ifrom ia isole iproprietorship iis
itaxed i only ionce iin ithe i hands iof ithe iindividual iproprietor i(income ifrom ia icorporation
iis itaxed iin i the icorporation iand ithen i again iin ithe ihands iof ithe iindividual iproprietor).
iA idisadvantage i of ioperating ias ia isole i proprietorship, irather ithan ia icorporation, iis
ithat ithe iindividual i proprietor ican ibe iheld iresponsible i for ithe idebts iof ithe ibusiness.
3. Financial iaccounting ifocuses ion ipreparing iand iusing ithe ifinancial istatements ithat iare
i made i available ito iowners iand iexternal iusers isuch ias icustomers, icreditors, iand
ipotential i investors iwho i are iinterested iin ireading ithem. iManagerial iaccounting
ifocuses ion iother i accounting ireports ithat i are inot ireleased ito ithe igeneral ipublic, ibut
iinstead iare iprepared i and iused iby iemployees, i supervisors, iand imanagers iwho irun
ithe icompany.
4. Financial ireports iare iused iby iboth iinternal iand iexternal igroups iand iindividuals. iThe
i internal i groups iare icomprised iof ithe ivarious imanagers iof ithe ibusiness. iThe
iexternal i groups iinclude i investors, icreditors, igovernmental iagencies, iother
iinterested iparties, iand i the ipublic iat ilarge.
5. The ibusiness iitself, inot ithe iindividual ishareholders iwho iown ithe ibusiness, iis iviewed ias
i owning ithe i assets iand iowing ithe iliabilities ion iits ibalance isheet. iA ibusiness‘s ibalance
i sheet iincludes ithe iassets, i liabilities, iand ishareholders‘ iequity iof ionly ithat ibusiness iand
i not ithe ipersonal iassets, iliabilities, iand i equity iof ithe ishareholders. i The ifinancial
i statements iof ia icompany ishow ithe iresults iof ithe ibusiness i activities iof ionly ithat
icompany.
6. (a) i Operating i– iThese iactivities iare idirectly irelated ito iearning iprofits. iThey iinclude
ibuying i supplies, imaking iproducts, iserving icustomers, icleaning ithe ipremises,
iadvertising, irenting i i a ibuilding, i repairing iequipment, iand iobtaining iinsurance
icoverage.
, (b) Investing i– iThese iactivities iinvolve ibuying iand iselling iproductive iresources iwith
ilong i lives i(such i as ibuildings, iland, iequipment, iand itools), ipurchasing iinvestments,
iand ilending i to iothers.
(c) Financing i– iAny iborrowing ifrom ibanks, irepaying ibank iloans, ireceiving
i contributions ifrom i shareholders, ior ipaying idividends ito ishareholders iare
iconsidered i financing iactivities.
7. The iheading iof ieach iof ithe ifour iprimary ifinancial istatements ishould iinclude ithe ifollowing:
(a) Name iof ithe ibusiness
(b) Name iof ithe istatement
(c) Date iof ithe istatement, ior ithe iperiod iof itime
8. (a) i The ipurpose iof ithe ibalance isheet iis ito ireport ithe ifinancial iposition i(assets, i liabilities
i and
shareholders‘ iequity) iof ia ibusiness iat ia ipoint iin itime.
(b) The ipurpose iof ithe iincome istatement iis ito ipresent iinformation iabout ithe irevenues,
i expenses, i and inet iincome iof ia ibusiness ifor ia ispecified iperiod iof itime.
(c) The istatement iof iretained iearnings ireports ithe iway ithat inet iincome iand ithe
i distribution iof i dividends iaffected ithe ifinancial iposition iof ithe icompany iduring ithe
iperiod.
(d) i The ipurpose iof ithe istatement iof icash iflows iis ito isummarize ihow ia ibusiness‘s
i operating, i investing, iand ifinancing iactivities icaused iits icash ibalance ito ichange iover ia
i particular iperiod iof i time.
9. The iincome istatement, istatement iof iretained iearnings, iand istatement iof icash iflows iwould i be
idated
―ForitheiYear iEnded iDecemberi31,i2020,‖ibecauseithey ireportitheiinflowsiand i outflows iof
i resources iduring ia iperiod iof itime. iIn icontrast, ithe ibalance isheet iwould ibe i datedi―At
iDecember i 31,i2020,‖ibecauseiitirepresentsitheiassets,iliabilities iand i shareholders‘ iequity iat
ia ispecific idate.
10. Net iincome iis ithe iexcess iof itotal irevenues iover itotal iexpenses. iA inet iloss ioccurs iif itotal
i expenses i exceed itotal irevenues.
11. The iaccounting iequation ifor ithe ibalance isheet iis: iAssets i= iLiabilities i+ iShareholders‘
i Equity. i Assets iare ithe ieconomic iresources icontrolled iby ithe icompany. Liabilities
iare i amounts iowed iby ithe ibusiness. i Shareholders‘ iequity iis ithe iowners‘ iclaims ito
ithe i business. iIt i includes iamounts icontributed ito ithe ibusiness i(by iinvestors ithrough
i purchasing ithe icompany‘s i shares) iand ithe iamounts iearned iand iaccumulated ithrough
i profitable ibusiness ioperations.
12. The iequation ifor ithe iincome istatement iis iRevenues i– iExpenses i= iNet iIncome.
i Revenues iare i increases iin ia icompany‘s iresources, iarising iprimarily ifrom iits
ioperating i activities. i Expenses iare i decreases iin ia icompany‘s iresources, iarising
