Solution Manual For Intermediate Accounting, 11th Edition by David Spiceland, Mark Nelson, Wayne Thomas, Jennifer.

Solution Manual For Intermediate Accounting, 11th Edition
by David Spiceland, Mark Nelson, Wayne Thomas, Jennifer

,Chapter 1 Environment and Theoretical Structure of
. . . . . .

Financial .Accounting

Question .1–1
Financial .accounting .is .concerned .with .providing .relevant .financial .information
.about .various .kinds .of .organizations .to .different .types .of .external .users. .The .primary

.focus .of .financial .accounting .is .on .the .financial .information .provided .by .profit-

.oriented .companies .to .their .present .and .potential .investors .and .creditors.


Question .1–2
Resources .are .efficiently .allocated .if .they .are .given .to .enterprises .that .will .use
.them .to .provide .goods .and .services .desired .by .society .and .not .to .enterprises .that .will
.waste .them. .The .capital .markets .are .the .mechanism .that .fosters .this . efficient

.allocation .of .resources.


Question .1–3
Two .extremely .important .variables .that .must .be .considered .in .any .investment
.decision .are .the .expected .rate .of .return .and .the .uncertainty .or .risk .of .that .expected

.return.


Question .1–4
In .the .long .run, .a .company .will .be .able .to .provide .investors .and .creditors .with .a
.rate .of .return .only .if .it .can .generate .a .profit. .That .is, .it .must .be .able .to .use .the

.resources .provided .to .it .to .generate .cash .receipts .from .selling .a .product .or .service

.that .exceed .the .cash .disbursements .necessary .to .provide .that .product .or .service.


Question .1–5
The .primary .objective .of .financial .accounting .is .to .provide .investors . and
.creditors .with .information .that .will .help .them .make .investment .and .credit .decisions.


Question .1–6
Net .operating .cash .flows .are .the .difference .between .cash .receipts .and .cash
.disbursements .during .a .period .of .time .from .transactions . related .to .providing .goods

.and .services .to .customers. .Net .operating .cash .flows .may .not .be .a .good .indicator .of
.future .cash .flows .because, .by .ignoring .uncompleted .transactions, .they .may .not
.match .the .accomplishments .and .sacrifices .of .the .period.

,Question .1–7
GAAP .(generally .accepted .accounting .principles) .are .a .dynamic .set . of .both
.broad .and .specific .guidelines .that .a .company .should .follow .in .measuring . and

.reporting .the .information .in .their .financial .statements .and .related .notes. . It . is

.important .that .all .companies .follow .GAAP .so .that .investors .can .compare .financial

.information .across .companies .to .make .their .resource .allocation .decisions.


Question .1–8
In .1934, .Congress .created .the .SEC .and .gave .it .the .job .of .setting .accounting .and
.reporting .standards .for .companies .whose .securities .are .publicly .traded. .The .SEC .has
.retained .the .power, .but .has .relied .on .private .sector .bodies .to .create .the .standards.
.The .current .private .sector .body .responsible .for .setting .accounting .standards .is .the

.FASB.


Question .1–9
Auditors .are .independent, .professional .accountants .who .examine .financial
.statements .to .express .an .opinion. .The .opinion .reflects .the .auditors‘ .assessment .of .the

.statements' .fairness, .which .is .determined .by .the .extent .to .which .they .are .prepared .in

.compliance .with .GAAP. . The .auditor .adds .credibility .to .the .financial .statements,
.which .increases .the .confidence .of .capital .market .participants .relying .on .that
.information.

, Question .1–10
Key .provisions .included .in .the .text .are:
 Creation .of .the .Public .Company .Accounting .Oversight .Board
 Regulate .types .of .non-audit .audit .services
 Require .lead .audit .partner .rotation .every .5 .year
 Corporate .executive .accountability
 Addresses .conflicts .of .interest .for .security .analysts
 Internal .control .reporting .and .auditor .opinion .about .controls

Question .1–11
New .accounting .standards, .or .changes .in .standards, .can .have .significant
.differential .effects .on .companies, .investors .and .creditors, .and .other .interest .groups
.by .causing .redistribution .of .wealth. . There .also .is .the .possibility .that .standards .could

.harm .the .economy .as .a .whole .by .causing .companies .to .change .their .behavior.


Question .1–12
The .FASB .undertakes .a .series .of .elaborate .information .gathering .steps .before
.issuing .an .accounting .standard .to .determine .consensus .as .to .the .preferred .method .of
.accounting, .as .well .as .to .anticipate .adverse .economic .consequences.


Question .1–13
The .purpose .of .the .conceptual .framework .is .to .guide .the .Board .in .developing
.accounting .standards .by .providing .an .underlying .foundation .and .basic .reasoning .on

.which .to .consider .merits .of .alternatives. . The .framework .does .not .prescribe .GAAP.