SolutioniManual
Fundamentals iOf iFinancial iAccounting i6th i Edition i iBy
iPhillips iRobert iAll iChapters i(1-13) iCovered
,TABLE OFCONTENT
i i
CHAPTER 1: BusinessDecisions and Financial
Accounting CHAPTER 2: The Balance Sheet
CHAPTER 3: The Income Statement
CHAPTER 4: Adjustments, Financial Statements, and Financial
Results CHAPTER 5: Fraud, Internal Control, and Cash
CHAPTER 6: MerchandisingOperationsand the Multi-stepIncome
Statement CHAPTER 7: Inventory and Costof Goods Sold
CHAPTER 8: Receivables, Bad Debt Expense, andInterest
Revenue CHAPTER 9: Long-Lived Tangible andIntangible
Assets
CHAPTER10: Liabilities
CHAPTER11: Shareholders' Equity
CHAPTER 12: Statement of Cash
Flows
CHAPTER13: MeasuringandEvaluatingFinancial Performance
,Chapter1
Business Decisions and Financial Accounting
ANSWERS TO QUESTIONS
1. Accounting is a system of analyzing, recording, and summarizing the results of a
business‘sactivities and then reportingthem to decision makers.
2. An advantage of operating as a sole proprietorship, rather than a corporation, is that it is
easy to establish. Another advantage is that income from a sole proprietorship is
taxed only once in the hands of the individual proprietor (income from a corporation
is taxed in the corporation and then again in the hands of the individual proprietor).
Adisadvantage of operating as a sole proprietorship, rather than a corporation, is
that the individual proprietor can be held responsible for the debts of the business.
3. Financial accounting focuses on preparing and using the financialstatements that are
made available to owners and external users such as customers, creditors, and
potential investorswho are interested in reading them. Managerial accounting
focuses on other accounting reports that are not released to the general public, but
instead are prepared and used by employees, supervisors,and managers who run
the company.
4. Financial reports are used byboth internal and external groups and individuals. The
internal groups are comprised of the various managers of the business. The
external groups include investors, creditors, governmental agencies, other
interested parties, and the public at large.
5. The business itself, not the individual shareholders who own thebusiness, is viewed as
owning the assets and owing the liabilities on its balance sheet. A business‘s balance
sheet includes the assets, liabilities, and shareholders‘ equity of only that business and
not the personal assets, liabilities, and equity of the shareholders. The financial
statements of a company show the results of the business activities of onlythat
company.
6. (a) Operating – These activities are directly related to earning profits. Theyinclude
buying supplies, making products, serving customers, cleaning the premises,
advertising, renting a building, repairing equipment,and obtaininginsurance
coverage.
, (b) Investing – These activities involve buying and selling productive resources with
long lives (such as buildings, land, equipment, and tools), purchasing investments,
and lending toothers.
(c) Financing – Any borrowing from banks, repaying bank loans,
receiving contributions from shareholders, or paying dividends to
shareholders are considered financing activities.
7. The heading of each of the four primaryfinancial statements should include the following:
(a) Name of the business
(b) Name ofthe statement
(c) Date of the statement, or the period of time
8. (a) Thepurpose of the balance sheet is to report the financial position (assets, liabilities
and
shareholders‘ equity) of a business at a point in time.
(b) Thepurpose of the income statement is to present information about the revenues,
expenses, and net income of a business for a specified period of time.
(c) The statement of retained earnings reports the waythat net income and the
distribution of dividends affected thefinancialposition of the company during the
period.
(d) The purpose of the statement of cash flows is to summarize how a business‘s
operating, investing, and financing activities caused its cash balance to change over a
particular period of time.
9. The income statement, statement of retained earnings, and statement of cashflows would be
dated
―FortheYear EndedDecember31,2020,‖becausetheyreporttheinflowsand outflows of
resources during a period of time. In contrast, the balance sheet would be dated―At
December 31,2020,‖becauseiitrepresentsitheassets,iliabilitiesiand shareholders‘ equity at
a specificdate.
10. Net income is the excess of total revenues over total expenses. A net loss occurs if total
expenses exceedtotalrevenues.
11. The accounting equation for the balancesheet is: Assets = Liabilities + Shareholders‘
Equity. Assets are the economic resources controlled by the company. Liabilities
are amounts owed by the business. Shareholders‘ equity is the owners‘ claims to
the business. It includes amounts contributed tothe business(byinvestors through
purchasing the company‘s shares) and the amounts earned and accumulated through
profitablebusiness operations.
12. The equation for the income statement is Revenues – Expenses = Net Income.
Revenues are increases in a company‘s resources, arising primarily from its
operating activities. Expenses are decreases in a company‘s resources, arising
Fundamentals iOf iFinancial iAccounting i6th i Edition i iBy
iPhillips iRobert iAll iChapters i(1-13) iCovered
,TABLE OFCONTENT
i i
CHAPTER 1: BusinessDecisions and Financial
Accounting CHAPTER 2: The Balance Sheet
CHAPTER 3: The Income Statement
CHAPTER 4: Adjustments, Financial Statements, and Financial
Results CHAPTER 5: Fraud, Internal Control, and Cash
CHAPTER 6: MerchandisingOperationsand the Multi-stepIncome
Statement CHAPTER 7: Inventory and Costof Goods Sold
CHAPTER 8: Receivables, Bad Debt Expense, andInterest
Revenue CHAPTER 9: Long-Lived Tangible andIntangible
Assets
CHAPTER10: Liabilities
CHAPTER11: Shareholders' Equity
CHAPTER 12: Statement of Cash
Flows
CHAPTER13: MeasuringandEvaluatingFinancial Performance
,Chapter1
Business Decisions and Financial Accounting
ANSWERS TO QUESTIONS
1. Accounting is a system of analyzing, recording, and summarizing the results of a
business‘sactivities and then reportingthem to decision makers.
2. An advantage of operating as a sole proprietorship, rather than a corporation, is that it is
easy to establish. Another advantage is that income from a sole proprietorship is
taxed only once in the hands of the individual proprietor (income from a corporation
is taxed in the corporation and then again in the hands of the individual proprietor).
Adisadvantage of operating as a sole proprietorship, rather than a corporation, is
that the individual proprietor can be held responsible for the debts of the business.
3. Financial accounting focuses on preparing and using the financialstatements that are
made available to owners and external users such as customers, creditors, and
potential investorswho are interested in reading them. Managerial accounting
focuses on other accounting reports that are not released to the general public, but
instead are prepared and used by employees, supervisors,and managers who run
the company.
4. Financial reports are used byboth internal and external groups and individuals. The
internal groups are comprised of the various managers of the business. The
external groups include investors, creditors, governmental agencies, other
interested parties, and the public at large.
5. The business itself, not the individual shareholders who own thebusiness, is viewed as
owning the assets and owing the liabilities on its balance sheet. A business‘s balance
sheet includes the assets, liabilities, and shareholders‘ equity of only that business and
not the personal assets, liabilities, and equity of the shareholders. The financial
statements of a company show the results of the business activities of onlythat
company.
6. (a) Operating – These activities are directly related to earning profits. Theyinclude
buying supplies, making products, serving customers, cleaning the premises,
advertising, renting a building, repairing equipment,and obtaininginsurance
coverage.
, (b) Investing – These activities involve buying and selling productive resources with
long lives (such as buildings, land, equipment, and tools), purchasing investments,
and lending toothers.
(c) Financing – Any borrowing from banks, repaying bank loans,
receiving contributions from shareholders, or paying dividends to
shareholders are considered financing activities.
7. The heading of each of the four primaryfinancial statements should include the following:
(a) Name of the business
(b) Name ofthe statement
(c) Date of the statement, or the period of time
8. (a) Thepurpose of the balance sheet is to report the financial position (assets, liabilities
and
shareholders‘ equity) of a business at a point in time.
(b) Thepurpose of the income statement is to present information about the revenues,
expenses, and net income of a business for a specified period of time.
(c) The statement of retained earnings reports the waythat net income and the
distribution of dividends affected thefinancialposition of the company during the
period.
(d) The purpose of the statement of cash flows is to summarize how a business‘s
operating, investing, and financing activities caused its cash balance to change over a
particular period of time.
9. The income statement, statement of retained earnings, and statement of cashflows would be
dated
―FortheYear EndedDecember31,2020,‖becausetheyreporttheinflowsand outflows of
resources during a period of time. In contrast, the balance sheet would be dated―At
December 31,2020,‖becauseiitrepresentsitheassets,iliabilitiesiand shareholders‘ equity at
a specificdate.
10. Net income is the excess of total revenues over total expenses. A net loss occurs if total
expenses exceedtotalrevenues.
11. The accounting equation for the balancesheet is: Assets = Liabilities + Shareholders‘
Equity. Assets are the economic resources controlled by the company. Liabilities
are amounts owed by the business. Shareholders‘ equity is the owners‘ claims to
the business. It includes amounts contributed tothe business(byinvestors through
purchasing the company‘s shares) and the amounts earned and accumulated through
profitablebusiness operations.
12. The equation for the income statement is Revenues – Expenses = Net Income.
Revenues are increases in a company‘s resources, arising primarily from its
operating activities. Expenses are decreases in a company‘s resources, arising
