SOLUTION MANUAL FOR Financial Accounting 12th Edition By Robert Libby, Patricia Libby, Fra
x x x x x x x x x x x x
xnk Hodge All Chapters Latest Verified Edition Solution Guide
x x x x x x x x
© xMcGraw x Hill x LLC. x All x rights x reserved. x No x reproduction x or xdistribution x without x the x prior x written x consent x of
McGraw
,SOLUTION MANUAL FOR x x
FinancialAccounting12thEditionRobertLibby, x x x x x
Patricia Libby, Frank Hodge
x x x x
Chapter1 x
FinancialStatementsandBusinessDecisions x x x
ANSWERS TO QUESTIONS x x
1. Accounting is a system that collects and processes (analyzes, measures, and
x x x x x x x x x x
records) financial information about an organization and reports that information to
x x x x x x x x x x x
decision makers.
x x
2. Financial accounting involves preparation of the four basic financial statements and
x x x x x x x x x x
related disclosures for external decision makers. Managerial accounting
x x x x x x x x
involves the preparation of detailed plans, budgets, forecasts, and performance
x x x x x x x x x x
reports for internal decision makers.
x x x x x
3. Financial reports are used by both internal and external groups and individuals. The
x x x x x x x x x x x x
internal groups are comprised of the various managers of the entity. The external
x x x x x x x x x x x x x
groups include the owners, investors, creditors, governmental agencies, other
x x x x x x x x x
interested parties, and the public at large.
x x x x x x x
4. Investors purchase all or part of a business and hope to gain by receiving part of
x x x x x x x x x x x x x x x
what the company earns and/or selling their ownership interest in the company in
x x x x x x x x x x x x x
the future at a higher price than they paid. Creditors lend money to a company for
x x x x x x x x x x x x x x x x
a specific length of time and hope to gain by charging interest on the loan.
x x x x x x x x x x x x x x x
© xMcGraw x Hill x LLC. x All x rights x reserved. x No x reproduction x or xdistribution x without x the x prior x written x consent x of
McGraw
,5. In a society, each organization can be defined as a separate accounting entity. An
x x x x x x x x x x x x x
accounting entity is the organization for which financial data are to be collected.
x x x x x x x x x x x x x
Typical accounting entities are a business, a church, a governmental unit, a
x x x x x x x x x x x x
university and other nonprofit organizations such as a hospital and a welfare
x x x x x x x x x x x x
organization. A business typically is defined and treated as a separate entity
x x x x x x x x x x x x
because the owners, creditors, investors, and other interested parties need to
x x x x x x x x x x x
evaluate its performance and its potential separately from other entities and from its
x x x x x x x x x x x x x
owners.
x
6. Name of Statementx x Alternative Title x
(a) Income Statement x (a) Statement of Earnings; Statement of
x x x x x x
Income; Statement of Operations x x x
(b) Balance Sheet x (b) Statement of Financial Position
x x x x x
(c) Cash Flow Statement x x (c) Statement of Cash Flows
x x x x x
7. The heading of each of the four required financial statements should include the
x x x x x x x x x x x x
following:
x
(a) Name of the entity x x x
(b) Name of the statement x x x
(c) Date of the statement, or the period of time
x x x x x x x x
(d) Unit of measure x x
8. (a) The purpose of the income statement is to present information about the
x x x x x x x x x x x
xrevenues, expenses, and the net income of an entity for a specified period of
x x x x x x x x x x x x x
xtime.
(b) The purpose of the balance sheet is to report the financial position of an entity
x x x x x x x x x x x x x x
xat a given date, that is, to report information about the assets, liabilities and
x x x x x x x x x x x x x
xstockholders’ equity of the entity as of a specific date. x x x x x x x x x
(c) The purpose of the statement of cash flows is to present information about the
x x x x x x x x x x x x x
xflow of cash into the entity (sources), the flow of cash out of the entity (uses),
x x x x x x x x x x x x x x x
xand the net increase or decrease in cash during the period.
x x x x x x x x x x
(d) The statement of stockholders’ equity reports the changes in each of the
x x x x x x x x x x x
xcompany’s stockholders’ equity accounts during the accounting period,
x x x x x x x
xincluding issue and repurchase of stock and the way that net income and
x x x x x x x x x x x x
xdistribution of dividends affected the retained earnings of the company during
x x x x x x x x x x
xthat period. x
9. The income statement and the statement of cash flows are dated ―For the Year
x x x x x x x x x x x x x
Ended December 31‖ because they report the inflows and outflows of resources
x x x x x x x x x x x x
during a period of time. In contrast, the balance sheet is dated ―At December 31‖
x x x x x x x x x x x x x x x
because it represents the resources, obligations, and stockholders’ equity at a
x x x x x x x x x x x
specific date.
x x
© xMcGraw x Hill x LLC. x All x rights x reserved. x No x reproduction x or xdistribution x without x the x prior x written x consent x of
McGraw
, 10. Assets are important to creditors and investors because assets provide a basis for
x x x x x x x x x x x x
judging whether sufficient resources are available to operate the company.
x x x x x x x x x x
Assets are also important because they could be sold for cash in the event the
x x x x x x x x x x x x x x x
company goes out of business. Liabilities are important to creditors and investors
x x x x x x x x x x x x
because the company must be able to generate sufficient cash from operations or
x x x x x x x x x x x x
further borrowing to meet the payments required by debt agreements. If a
x x x x x x x x x x x x
business does not pay its creditors, the law may give the creditors the right to force
x x x x x x x x x x x x x x x x
the sale of assets sufficient to meet their claims.
x x x x x x x x x
11. Net income is the excess of total revenues over total expenses. Net loss is the
x x x x x x x x x x x x x x
excess of total expenses over total revenues.
x x x x x x x
12. The equation for the income statement is Revenues - Expenses = Net Income (or
x x x x x x x x x x x x x
Net Loss if the amount is negative). Thus, the three major items reported on the
x x x x x x x x x x x x x x x
income statement are (1) revenues, (2) expenses, and (3) net income.
x x x x x x x x x x x
13. The equation for the balance sheet (also known as the basic accounting equation)
x x x x x x x x x x x x
is: Assets = Liabilities + Stockholders’ Equity. Assets are the probable (expected)
x x x x x x x x x x x x
future economic benefits owned by the entity as a result of past transactions. They
x x x x x x x x x x x x x x
are the resources owned by the business at a given point in time such as cash,
x x x x x x x x x x x x x x x x
receivables, inventory, machinery, buildings, land, and patents. Liabilities are
x x x x x x x x x
probable (expected) debts or obligations of the entity as a result of past
x x x x x x x x x x x x x
transactions that will be paid with assets or services in the future. They are the
x x x x x x x x x x x x x x x
obligations of the entity such as accounts payable, notes payable, and bonds
x x x x x x x x x x x x
payable. Stockholders’ equity is financing provided by owners of the business and
x x x x x x x x x x x x
operations. It is the claim of the owners to the assets of the business after the
x x x x x x x x x x x x x x x x
creditors’ claims have been satisfied. It may be thought of as the residual interest
x x x x x x x x x x x x x x
because it represents assets minus liabilities.
x x x x x x
14. The equation for the statement of cash flows is: Cash flows from operating activities
x x x x x x x x x x x x x
+ Cash flows from investing activities + Cash flows from financing activities =
x x x x x x x x x x x x
Change in cash for the period. The net cash flows for the period represent the
x x x x x x x x x x x x x x x
increase or decrease in cash that occurred during the period. Cash flows from
x x x x x x x x x x x x x
operating activities are cash flows directly related to earning income (normal
x x x x x x x x x x x
business activity including interest paid and income taxes paid). Cash flows from
x x x x x x x x x x x x
investing activities include cash flows that are related to the acquisition or sale of
x x x x x x x x x x x x x x
productive assets used by the company. Cash flows from financing activities are
x x x x x x x x x x x x
directly related to the financing of the enterprise itself.
x x x x x x x x x
15. The retained earnings equation is: Beginning Retained Earnings + Net Income -
x x x x x x x x x x x
Dividends = Ending Retained Earnings. It begins with beginning-of-the-year
x x x x x x x x x
Retained Earnings which is the prior year’s ending retained earnings reported on
x x x x x x x x x x x x
the balance sheet. The current year's Net Income reported on the income
x x x x x x x x x x x x
statement is added and the current year's Dividends are subtracted from this
x x x x x x x x x x x x
amount. The ending Retained Earnings amount is reported on the end-of-period
x x x x x x x x x x x
balance sheet.
x x
© xMcGraw x Hill x LLC. x All x rights x reserved. x No x reproduction x or xdistribution x without x the x prior x written x consent x of
McGraw
x x x x x x x x x x x x
xnk Hodge All Chapters Latest Verified Edition Solution Guide
x x x x x x x x
© xMcGraw x Hill x LLC. x All x rights x reserved. x No x reproduction x or xdistribution x without x the x prior x written x consent x of
McGraw
,SOLUTION MANUAL FOR x x
FinancialAccounting12thEditionRobertLibby, x x x x x
Patricia Libby, Frank Hodge
x x x x
Chapter1 x
FinancialStatementsandBusinessDecisions x x x
ANSWERS TO QUESTIONS x x
1. Accounting is a system that collects and processes (analyzes, measures, and
x x x x x x x x x x
records) financial information about an organization and reports that information to
x x x x x x x x x x x
decision makers.
x x
2. Financial accounting involves preparation of the four basic financial statements and
x x x x x x x x x x
related disclosures for external decision makers. Managerial accounting
x x x x x x x x
involves the preparation of detailed plans, budgets, forecasts, and performance
x x x x x x x x x x
reports for internal decision makers.
x x x x x
3. Financial reports are used by both internal and external groups and individuals. The
x x x x x x x x x x x x
internal groups are comprised of the various managers of the entity. The external
x x x x x x x x x x x x x
groups include the owners, investors, creditors, governmental agencies, other
x x x x x x x x x
interested parties, and the public at large.
x x x x x x x
4. Investors purchase all or part of a business and hope to gain by receiving part of
x x x x x x x x x x x x x x x
what the company earns and/or selling their ownership interest in the company in
x x x x x x x x x x x x x
the future at a higher price than they paid. Creditors lend money to a company for
x x x x x x x x x x x x x x x x
a specific length of time and hope to gain by charging interest on the loan.
x x x x x x x x x x x x x x x
© xMcGraw x Hill x LLC. x All x rights x reserved. x No x reproduction x or xdistribution x without x the x prior x written x consent x of
McGraw
,5. In a society, each organization can be defined as a separate accounting entity. An
x x x x x x x x x x x x x
accounting entity is the organization for which financial data are to be collected.
x x x x x x x x x x x x x
Typical accounting entities are a business, a church, a governmental unit, a
x x x x x x x x x x x x
university and other nonprofit organizations such as a hospital and a welfare
x x x x x x x x x x x x
organization. A business typically is defined and treated as a separate entity
x x x x x x x x x x x x
because the owners, creditors, investors, and other interested parties need to
x x x x x x x x x x x
evaluate its performance and its potential separately from other entities and from its
x x x x x x x x x x x x x
owners.
x
6. Name of Statementx x Alternative Title x
(a) Income Statement x (a) Statement of Earnings; Statement of
x x x x x x
Income; Statement of Operations x x x
(b) Balance Sheet x (b) Statement of Financial Position
x x x x x
(c) Cash Flow Statement x x (c) Statement of Cash Flows
x x x x x
7. The heading of each of the four required financial statements should include the
x x x x x x x x x x x x
following:
x
(a) Name of the entity x x x
(b) Name of the statement x x x
(c) Date of the statement, or the period of time
x x x x x x x x
(d) Unit of measure x x
8. (a) The purpose of the income statement is to present information about the
x x x x x x x x x x x
xrevenues, expenses, and the net income of an entity for a specified period of
x x x x x x x x x x x x x
xtime.
(b) The purpose of the balance sheet is to report the financial position of an entity
x x x x x x x x x x x x x x
xat a given date, that is, to report information about the assets, liabilities and
x x x x x x x x x x x x x
xstockholders’ equity of the entity as of a specific date. x x x x x x x x x
(c) The purpose of the statement of cash flows is to present information about the
x x x x x x x x x x x x x
xflow of cash into the entity (sources), the flow of cash out of the entity (uses),
x x x x x x x x x x x x x x x
xand the net increase or decrease in cash during the period.
x x x x x x x x x x
(d) The statement of stockholders’ equity reports the changes in each of the
x x x x x x x x x x x
xcompany’s stockholders’ equity accounts during the accounting period,
x x x x x x x
xincluding issue and repurchase of stock and the way that net income and
x x x x x x x x x x x x
xdistribution of dividends affected the retained earnings of the company during
x x x x x x x x x x
xthat period. x
9. The income statement and the statement of cash flows are dated ―For the Year
x x x x x x x x x x x x x
Ended December 31‖ because they report the inflows and outflows of resources
x x x x x x x x x x x x
during a period of time. In contrast, the balance sheet is dated ―At December 31‖
x x x x x x x x x x x x x x x
because it represents the resources, obligations, and stockholders’ equity at a
x x x x x x x x x x x
specific date.
x x
© xMcGraw x Hill x LLC. x All x rights x reserved. x No x reproduction x or xdistribution x without x the x prior x written x consent x of
McGraw
, 10. Assets are important to creditors and investors because assets provide a basis for
x x x x x x x x x x x x
judging whether sufficient resources are available to operate the company.
x x x x x x x x x x
Assets are also important because they could be sold for cash in the event the
x x x x x x x x x x x x x x x
company goes out of business. Liabilities are important to creditors and investors
x x x x x x x x x x x x
because the company must be able to generate sufficient cash from operations or
x x x x x x x x x x x x
further borrowing to meet the payments required by debt agreements. If a
x x x x x x x x x x x x
business does not pay its creditors, the law may give the creditors the right to force
x x x x x x x x x x x x x x x x
the sale of assets sufficient to meet their claims.
x x x x x x x x x
11. Net income is the excess of total revenues over total expenses. Net loss is the
x x x x x x x x x x x x x x
excess of total expenses over total revenues.
x x x x x x x
12. The equation for the income statement is Revenues - Expenses = Net Income (or
x x x x x x x x x x x x x
Net Loss if the amount is negative). Thus, the three major items reported on the
x x x x x x x x x x x x x x x
income statement are (1) revenues, (2) expenses, and (3) net income.
x x x x x x x x x x x
13. The equation for the balance sheet (also known as the basic accounting equation)
x x x x x x x x x x x x
is: Assets = Liabilities + Stockholders’ Equity. Assets are the probable (expected)
x x x x x x x x x x x x
future economic benefits owned by the entity as a result of past transactions. They
x x x x x x x x x x x x x x
are the resources owned by the business at a given point in time such as cash,
x x x x x x x x x x x x x x x x
receivables, inventory, machinery, buildings, land, and patents. Liabilities are
x x x x x x x x x
probable (expected) debts or obligations of the entity as a result of past
x x x x x x x x x x x x x
transactions that will be paid with assets or services in the future. They are the
x x x x x x x x x x x x x x x
obligations of the entity such as accounts payable, notes payable, and bonds
x x x x x x x x x x x x
payable. Stockholders’ equity is financing provided by owners of the business and
x x x x x x x x x x x x
operations. It is the claim of the owners to the assets of the business after the
x x x x x x x x x x x x x x x x
creditors’ claims have been satisfied. It may be thought of as the residual interest
x x x x x x x x x x x x x x
because it represents assets minus liabilities.
x x x x x x
14. The equation for the statement of cash flows is: Cash flows from operating activities
x x x x x x x x x x x x x
+ Cash flows from investing activities + Cash flows from financing activities =
x x x x x x x x x x x x
Change in cash for the period. The net cash flows for the period represent the
x x x x x x x x x x x x x x x
increase or decrease in cash that occurred during the period. Cash flows from
x x x x x x x x x x x x x
operating activities are cash flows directly related to earning income (normal
x x x x x x x x x x x
business activity including interest paid and income taxes paid). Cash flows from
x x x x x x x x x x x x
investing activities include cash flows that are related to the acquisition or sale of
x x x x x x x x x x x x x x
productive assets used by the company. Cash flows from financing activities are
x x x x x x x x x x x x
directly related to the financing of the enterprise itself.
x x x x x x x x x
15. The retained earnings equation is: Beginning Retained Earnings + Net Income -
x x x x x x x x x x x
Dividends = Ending Retained Earnings. It begins with beginning-of-the-year
x x x x x x x x x
Retained Earnings which is the prior year’s ending retained earnings reported on
x x x x x x x x x x x x
the balance sheet. The current year's Net Income reported on the income
x x x x x x x x x x x x
statement is added and the current year's Dividends are subtracted from this
x x x x x x x x x x x x
amount. The ending Retained Earnings amount is reported on the end-of-period
x x x x x x x x x x x
balance sheet.
x x
© xMcGraw x Hill x LLC. x All x rights x reserved. x No x reproduction x or xdistribution x without x the x prior x written x consent x of
McGraw
