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

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

,Chapter 1 Introduction to Financial Reporting
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QUESTIONS

1- 1. a.
The AICPA is an organization of CPAs that prior to 1973 accepted the pri
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mary responsibility for the development of generally accepted accounting
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principles. Their role was substantially reduced in 1973 when the Financial
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Accounting Standards Board was established. Their role was further redu
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ced with the establishment of the Public Company Accounting Oversight B
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oard was established in 2002.
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b. The Financial Accounting Standards Board replaced the Accounting Pr
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inciples Board as the primary rule- sh sh sh sh sh



making body for accounting standards. It is an independent organizati
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on and includes members other than public accountants.
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c. The SEC has the authority to determine generally accepted accounting pri
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nciples and to regulate the accounting profession. The SEC has elected to
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leave much of the determination of generally accepted accounting princi
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ples to the private sector. The Financial Accounting Standards Board has
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played the major role in establishing accounting standards since 1973.
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Regulation of the accounting profession was substantially turned over to
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the Public Company Accounting Oversight Board in 2002.
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1- 2.
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Consistency is obtained through the application of the same accounting pr
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inciple from period to period. A change in principle requires statement di
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sclosure.

1- 3.
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The concept of historical cost determines the balance sheet valuation of land. Th
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e realization concept requires that a transaction needs to occur for the profit to b
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e recognized.
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1- 4.
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b. Realization f. Historical cost
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c. Materiality g. Disclosure
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d. Conservatism

1- 5.
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,1- 6.
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Generally accepted accounting principles do not apply when a firm does not a
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ppear to be a going concern. If the decision is made that this is not a going con
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cern, then the use of GAAP would not be appropriate.
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1- 7.
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With the time period assumption, inaccuracies of accounting for the entity, shor
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t of its complete life span, are accepted. The assumption is made that the entity c
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an be accounted for reasonably accurately for a particular period of time. In ot
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her words, the decision is made to accept some inaccuracy because of incomplet
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e information about the future in exchange for more timely reporting. The state
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ments are considered to be meaningful because material inaccuracies are not ac
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ceptable.

1- 8. s h s h It is true that the only accurate way to account for the success or failure of an e
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ntity is to accumulate all transactions from the opening of business until the bu
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siness eventually liquidates. But it is not necessary that the statements be com
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pletely accurate in order for them to be meaningful.
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1- 9. a. A year that ends when operations are at a low ebb for the year.
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b. The accounting time period is ended on December 31.
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c. A twelve- sh



month accounting period that ends at the end of a month other than Dece
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mber 31. sh




1-10. Money.

1-
11. When money does not hold a stable value, the financial statements can l
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ose much of their significance. To the extent that money does not remain stabl
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e, it loses 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 state
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ments. The items that are included in the index must be representative. In add
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ition, the prices of items change because of various factors, such as quality, tec
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hnology, and inflation. sh sh




Yes. A reasonable adjustment to the statements can be made for inflation.
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1-13. False. An arbitrary write- s h sh sh



off of inventory cannot be justified under the conservatism concept. The conse
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rvatism concept can only be applied where there are alternative measurements
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and each of these alternative measurements has reasonable support.
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, 1-14.
Yes, inventory that has a market value below the historical cost should be wri
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tten down in order to recognize a loss. This is done based upon the concept o
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f conservatism. Losses that can be reasonably anticipated should 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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