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

Complete Solution Manual for Intermediate Accounting, 11th Edition
ir ir ir ir ir ir ir




Chapter 1 ir ir Environment and Theoretical Structure of ir ir ir ir




Financial Accounting ir




Question 1–1 ir



Financial accounting is concerned with providing relevant financial information ir ir ir ir ir ir ir ir



about various kinds of organizations to different types of external users. The primary
ir ir ir ir ir ir ir ir ir ir ir ir ir



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



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




Question 1–2 ir



Resources are efficiently allocated if they are given to enterprises that will use ir ir ir ir ir ir ir ir ir ir ir ir



ir them to provide goods and services desired by society and not to enterprises that will
ir ir ir ir ir ir ir ir ir ir ir ir ir ir



ir waste them. The capital markets are the mechanism that fosters this efficient
ir ir ir ir ir ir ir ir ir ir i r



ir allocation of resources. ir ir




Question 1–3 ir



Two extremely important variables that must be considered in any investment
ir ir ir ir ir ir ir ir ir ir



ir decision are the expected rate of return and the uncertainty or risk of that expected
ir ir ir ir ir ir ir ir ir ir ir ir ir ir



ir return.

Question 1–4 ir



In the long run, a company will be able to provide investors and creditors with a
ir ir ir ir ir ir ir ir ir ir ir ir ir ir ir



ir rate of return only if it can generate a profit. That is, it must be able to use the
ir ir ir ir ir ir ir ir ir ir ir ir ir ir ir ir ir ir



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



ir thatexceed the cash disbursements necessary to provide that product or service.
ir ir ir ir ir ir ir ir ir ir ir




Question 1–5 ir



The primary objective of financial accounting is to provide investors and
ir ir ir ir ir ir ir ir ir i r



ir creditors with information that will help them make investment and credit decisions.
ir ir ir ir ir ir ir ir ir ir ir




Question 1–6 ir



Net operating cash flows are the difference between cash receipts and cash
ir ir ir ir ir ir ir ir ir ir ir



ir disbursements during a period of time from transactions related to providing goods ir ir ir ir ir ir ir i r ir ir ir



ir and services to customers. Net operating cash flows may not be a good indicator of
ir ir ir ir ir ir ir ir ir ir ir ir ir ir



ir future cash flows because, by ignoring uncompleted transactions, they may not match
ir ir ir ir ir ir ir ir ir ir ir



ir the accomplishments and sacrifices of the period.
ir ir ir ir ir ir




Solutions irManual, irChapter 2–1
©2irMcGraw irHill irLLC. irAll irrights irreserved. irNo irreproduction iror irdistribution irwithout irthe irprior irwritten irconsent irof irMcGraw irHill
ir

irLLC.

,Answers to Questions (continued)
ir ir ir




Question 1–7 ir



GAAP (generally accepted accounting principles) are a dynamic set of both
ir ir ir ir ir ir ir ir i r ir



ir broad and specific guidelines that a company should follow in measuring and
ir ir ir ir ir ir ir ir ir ir i r



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



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



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




Question 1–8 ir



In 1934, Congress created the SEC and gave it the job of setting accounting and
ir ir ir ir ir ir ir ir ir ir ir ir ir ir



ir reporting standards for companies whose securities are publicly traded. The SEC has
ir ir ir ir ir ir ir ir ir ir ir



ir retained the power, but has relied on private sector bodies to create the standards.
ir ir ir ir ir ir ir ir ir ir ir ir ir



ir The current private sector body responsible for setting accounting standards is the
ir ir ir ir ir ir ir ir ir ir ir



ir FASB.

Question 1–9 ir



Auditors are independent, professional accountants who examine financial
ir ir ir ir ir ir ir



ir statements to express an opinion. The opinion reflects the auditors‗ assessment of the
ir ir ir ir ir ir ir ir ir ir ir ir



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



ir compliance with GAAP. The auditor adds credibility to the financial statements,
ir ir i r ir ir ir ir ir ir ir



ir which increases the confidence of capital market participants relying on that
ir ir ir ir ir ir ir ir ir ir



ir information.




2–2 Intermediate irAccounting,
ir11/e
© irMcGraw irHill irLLC. irAll irrights irreserved. irNo irreproduction iror irdistribution irwithout irthe irprior irwritten irconsent irof irMcGraw irHill

irLLC.

,Complete Solution Manual for Intermediate Accounting, 11th Edition
ir ir ir ir ir ir ir




Answers to Questions (continued) ir ir ir




Question 1–10 ir



Key provisions included in the text are:
ir ir ir ir ir ir



 Creation of the Public Company Accounting Oversight Board ir ir ir ir ir ir ir


 Regulate types of non-audit audit services ir ir ir ir ir



 Require lead audit partner rotation every 5 year ir ir ir ir ir ir ir



 Corporate executive accountability ir ir



 Addresses conflicts of interest for security analysts ir ir ir ir ir ir


 Internal control reporting and auditor opinion about controls
ir ir ir ir ir ir ir




Question 1–11 ir



New accounting standards, or changes in standards, can have significant
ir ir ir ir ir ir ir ir ir



ir differential effects on companies, investors and creditors, and other interest groups by
ir ir ir ir ir ir ir ir ir ir ir



ir causing redistribution of wealth. There also is the possibility that standards could
ir ir ir i r ir ir ir ir ir ir ir



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




Question 1–12 ir



The FASB undertakes a series of elaborate information gathering steps before
ir ir ir ir ir ir ir ir ir ir



ir issuing an accounting standard to determine consensus as to the preferred method of
ir ir ir ir ir ir ir ir ir ir ir ir



ir accounting, as well as to anticipate adverse economic consequences.
ir ir ir ir ir ir ir ir




Question 1–13 ir



The purpose of the conceptual framework is to guide the Board in developing
ir ir ir ir ir ir ir ir ir ir ir ir



ir accounting standards by providing an underlying foundation and basic reasoning on
ir ir ir ir ir ir ir ir ir ir



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




Solutions irManual, irChapter 2–3
©2irMcGraw irHill irLLC. irAll irrights irreserved. irNo irreproduction iror irdistribution irwithout irthe irprior irwritten irconsent irof irMcGraw irHill
ir

irLLC.

, Answers to Questions (continued) ir ir ir




Question 1–14 ir



Relevance and faithful representation are the primary qualitative characteristics
ir ir ir ir ir ir ir ir



ir that make information decision-useful. Relevant information will possess predictive
ir ir ir ir ir ir ir ir



ir and/or confirmatory value. Faithful representation is the extent to which there is
ir ir ir ir ir ir ir ir ir ir ir



ir agreement between a measure or description and the phenomenon it purports to
ir ir ir ir ir ir ir ir ir ir ir



ir represent.

Question 1–15 ir



The components of relevant information are predictive value, confirmatory value
ir ir ir ir ir ir ir ir ir



ir and materiality. The components of faithful representation are completeness,
ir ir ir ir ir ir ir ir



ir neutrality, and freedom from error. ir ir ir ir




Question 1–16 ir



The benefit from providing accounting information is increased decision
ir ir ir ir ir ir ir ir



ir usefulness. If the information is relevant and possesses faithful representation, it will
ir ir ir ir ir ir ir ir ir ir ir



ir improve the decisions made by investors and creditors. However, there are costs to
ir ir ir ir ir ir ir ir ir ir ir ir



ir providing information that include costs to gather, process, and disseminate
ir ir ir ir ir ir ir ir ir



ir thatinformation. There also are costs to users in interpreting the information as well as
ir ir ir ir ir ir ir ir ir ir ir ir ir ir



ir possible adverse economic consequences that could result from disclosing
ir ir ir ir ir ir ir i r



ir information. Information should not be provided unless the benefits exceed the costs.
i r ir ir ir ir ir ir ir ir ir ir




Question 1–17 ir



Information is material if it is deemed to have an effect on a decision made by a
ir ir ir ir ir ir ir ir ir ir ir ir ir ir ir ir



ir user. The threshold for materiality will depend principally on the relative dollar
ir ir ir ir ir ir ir ir ir ir ir



ir amount of the transaction being considered. One consequence of materiality is that
ir ir ir ir ir ir ir ir ir ir ir



ir GAAP need not be followed in measuring and reporting a transaction if that
ir ir ir ir ir ir ir ir ir ir ir ir



ir transaction is not material. The threshold for materiality has been left to subjective
ir ir ir ir ir ir ir ir ir ir ir ir



ir judgment.




2–4 Intermediate irAccounting,
ir11/e
© irMcGraw irHill irLLC. irAll irrights irreserved. irNo irreproduction iror irdistribution irwithout irthe irprior irwritten irconsent irof irMcGraw irHill

irLLC.