Solution Manual For Financial Statement Analysis, 13th Edition By Charles H. Gibson, Verified Chapter's 1 to 13 | Complete

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,Chapter1
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Introductionto Financial Reporting f f f




QUESTIONS


1- 1.f a. The AICPA is an organization of CPAs that prior to 1973 accepted the primary
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responsibility for the development of generally accepted accounting
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principles.Theirrolewassubstantiallyreducedin1973when the Financial
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Accounting Standards Board was established. Their role was further
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reduced with the establishment of the Public Company Accounting Oversight
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Board was established in 2002.
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b. TheFinancialAccountingStandardsBoardreplacedtheAccountingPrinciples
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Board as the primary rule-making body for accounting standards. Itis an
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independent organization and includes members other than public
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accountants.
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c. TheSEChastheauthoritytodeterminegenerallyacceptedaccounting
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principles and to regulate the accounting profession. The SEC has elected
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to leave much of the determination of generally accepted accounting
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principles to the private sector. The Financial Accounting Standards Board
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has played the major role in establishing accounting standards since 1973.
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fRegulation of the accounting profession was substantially turned over to f f f f f f f f f




the Public Company Accounting Oversight Board in 2002.
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1- 2. f f f Consistency is obtained through the application of the same accounting
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principle from period to period. A change in principle requires statement
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disclosure.
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1

,1- 3.
f The concept of historical cost determines the balance sheet valuation of land. The
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realizationconceptrequiresthatatransactionneedstooccurfortheprofit to be
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recognized.
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1-4.
f a. Entity f e. Historical cost f f




b. Realization f. Historical cost f f




c. Materiality g. Disclosure f




d. Conservatism



1-5.
f Entityconcept f




1- 6. Generally accepted accounting principles do not apply when a firm does not appear to
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be a going concern. If the decision is made that this is not a going concern, then the
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use of GAAP would not be appropriate.
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1- 7.
f With the time period assumption, inaccuracies of accounting for the entity, shortof
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its completelife span,areaccepted.Theassumptionismadethatthe entity can be
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accounted for reasonably accurately for a particular period of time. In other words,
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the decision is made to accept some inaccuracy because of incomplete
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information about the future in exchange for more timely reporting. The
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statements are considered to be meaningful because material inaccuracies are
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not acceptable.
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1- 8. It is true that the only accurate way to account for the success or failure of an entity is to
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accumulate all transactions from the opening of business until the business
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eventually liquidates. But it is not necessary that the statements be completely
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accurate in order for them to be meaningful.
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, 1- 9. a. A year that ends when operationsare ata lowebbforthe year.
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b. TheaccountingtimeperiodisendedonDecember31.
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c. Atwelve-month accountingperiodthatendsattheendofamonthotherthan
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December 31. f f




1-10. Money.



1-11. When money does not hold a stable value, the financial statements can lose muchof
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theirsignificance. Totheextentthatmoneydoesnotremain stable,it loses
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usefulness as the standard for measuring financial transactions.
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1-12. No. There is a problem with determining the index in order to adjust the
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statements. The itemsthatareincludedintheindexmustbe representative. In
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addition, the prices of items change because of various factors, such as quality,
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technology, and inflation.
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Yes.Areasonable adjustmentto thestatementscanbe madeforinflation.
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1-13. False. An arbitrary write-off of inventory cannot be justified under the
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conservatismconcept. Theconservatismconceptcanonlybeapplied where
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there are alternative measurements and each of these alternative measurements
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has reasonable support.
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1-14. Yes, inventory that has a market value below the historical cost should be written
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down in order to recognize a loss. This is done based upon the conceptof
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conservatism. Lossesthatcanbereasonablyanticipatedshould be taken in
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order to reflect the least favorable effect on net income of the current period.
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