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Financial Accounting 6th Edition By Spiceland,Thomas, Herrmann_SOLUTIONS MANUAL

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TEST BANK for Financial Accounting 6th Edition by David Spiceland, Wayne Thomas and Don Herrmann. TABLE OF CONTENTS: Chapter 1: A Framework for Financial Accounting Chapter2: The Accounting Cycle: During the Period Chapter3: The Accounting Cycle: End of the Period Chapter4: Cash and Inte...

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  • June 6, 2024
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  • 2023/2024
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, Chapter 1
A Framework for Financial Accounting

REVIEW QUESTIONS
Question 1-1 (LO 1-1)
Accounting is the language of business. Whereas a basic math class might involve adding,
subtracting, and solving for unknown variables, accounting involves learning to measure business
transactions and communicating those measurements in a format that is generally understood by
decision makers.

Question 1-2 (LO 1-1)
Those interested in making decisions about a company include investors, creditors, customers,
suppliers, managers, employees, competitors, regulators, tax authorities, and local communities.

Question 1-3 (LO 1-1)
Financial accounting seeks to measure business activities of a company and to communicate those
measurements to external parties for decision-making purposes. The two primary external, or outside
the firm, users of financial accounting information are investors and creditors. Managerial accounting
deals with the methods accountants use to provide information to an organization’s internal users,
that is, its own managers.

Question 1-4 (LO 1-1)
The two primary functions of financial accounting are to measure business activities of a company
and to communicate information about those activities to investors and creditors for decision-making
purposes.

Question 1-5 (LO 1-2)
The three basic business activities are financing, investing, and operating activities. Financing
activities are transactions that raise cash needed to operate the business, such as issuing stock and
borrowing money from a bank. Investing activities typically include the purchase or disposal of long-
term resources that are expected to benefit the company for several years, such as land, buildings,
equipment, and machinery. Operating activities include the primary operations of the company,
providing products and services to customers and the associated costs of doing so, like utilities, taxes,
advertising, wages, rent, and maintenance.

Question 1-6 (LO 1-2)
Typical financing activities for UPS would include selling stock and paying dividends to investors,
as well as borrowing and repaying debt to creditors.

Question 1-7 (LO 1-2)
Typical investing activities for Caesars Entertainment would include the purchase or disposal of
land, casino buildings, hotels, gaming tables, chairs, cleaning equipment, and food preparation
machines.
©2022 McGraw Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distributio
permitted without the prior written consent of McGraw Hill Education.
Solutions Manual, Chapter 1 1-1

,Answers to Review Questions (continued)

Question 1-8 (LO 1-2)
Typical operating activities for Oracle would include the sale of software and consulting services,
as well as costs related to salaries, research, utilities, advertising, rent, and taxes.

Question 1-9 (LO 1-2)
The three major legal forms of business organizations include sole proprietorship, partnership, and
corporation? A corporation is chosen by most of the largest companies in the United States.

Question 1-10 (LO 1-2)
Assets: Resources owned.
Liabilities: Amounts owed.
Stockholders’ equity: Owners’ claims to resources.
Dividends: Distributions to stockholders.
Revenues: Sales of products or services to customers.
Expenses: Costs of selling products or services.

Question 1-11 (LO 1-2)
The major advantage of a corporation is limited liability. Stockholders of a corporation are not
held personally responsible for the financial obligations of the corporation. Owners of sole
proprietorships or partnerships remain personally liable for activities of the business. Corporations
have the disadvantages of double taxation compared to sole proprietorships and partnerships. Sole
proprietorship and partnership forms of business have the advantage that income is taxed only once.
However, there could be other tax advantages for certain types of corporations, such as a lower
overall tax rate compared to partnerships and sole proprietorships. Sole proprietorships and
partnerships are often limited in the amount of funds they can raise to start a business.

Question 1-12 (LO 1-3)
1. Income statement: Reports the company’s revenues and expenses during an interval of time. If
revenues exceed expenses, then the company reports net income. If expenses exceed revenues,
then the company reports a net loss.
2. Statement of stockholders’ equity: Summarizes the changes in stockholders’ equity from net
income, dividends, and stock issuances during an interval of time.
3. Balance sheet: Presents the financial position of the company on a particular date. It shows
that assets equal liabilities plus stockholders’ equity.
4. Statement of cash flows: Reports cash inflows and outflows related to operating, investing,
and financing activities during an interval of time.

Question 1-13 (LO 1-3)
Balances of accounts reported in the income statement, statement of stockholders’ equity, and
statement of cash flows reflect activity from the beginning of the period through the end of the period.
Balances of accounts reported in the balance sheet reflect the financial position of the company as of a
single date, the end of the period. The income statement, statement of stockholders’ equity and


©2022 McGraw Hill Education. All rights reserved .Authorized only for instructor use in the classroom. No reproduction or further
distribution permitted without the prior written consent of McGraw Hill Education
1-2 Financial Accounting, 6e

, statement of cash flows is like a video (shows events over time), whereas the balance sheet is like a
photograph (shows events at a point in time).




©2022 McGraw Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distributio
permitted without the prior written consent of McGraw Hill Education.
Solutions Manual, Chapter 1 1-3

SOURCE: Browsegrades.net

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