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

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

, ChapterY1Y IntroductionYt
oYFinancialYReporting


QUESTIONS

1- 1. a.
TheYAICPAYisYanYorganizationYofYCPAsYthatYpriorYtoY1973YacceptedYtheYprimaryY
responsibilityYforYtheYdevelopmentYofYgenerallyYacceptedYaccountingYprinciples.Y
TheirYroleYwasYsubstantiallyYreducedYinY1973YwhenYtheYFinancialYAccountingYSta
ndardsYBoardYwasYestablished.Y TheirYroleYwasYfurtherYreducedYwithYtheYestablis
hmentYofYtheYPublicYCompanyYAccountingYOversightYBoardYwasYestablishedYinY2
002.

b. TheYFinancialYAccountingYStandardsYBoardYreplacedYtheYAccountingYPrinci
plesYBoardYasYtheYprimaryYrule-
makingYbodyYforYaccountingYstandards.YItYisYanYindependentYorganizationYan
dYincludesYmembersYotherYthanYpublicYaccountants.

c. TheYSECYhasYtheYauthorityYtoYdetermineYgenerallyYacceptedYaccountingYprincip
lesYandYtoYregulateYtheYaccountingYprofession.YTheYSECYhasYelectedYtoYleaveYm
uchYofYtheYdeterminationYofYgenerallyYacceptedYaccountingYprinciplesYtoYtheYpr
ivateYsector.Y TheYFinancialYAccountingYStandardsYBoardYhasYplayedYtheYmajorY
roleYinYestablishingYaccountingYstandardsYsinceY1973.Y RegulationYofYtheYaccou
ntingYprofessionYwasYsubstantiallyYturnedYoverYtoYtheYPublicYCompanyYAccoun
tingYOversightYBoardYinY2002.

1-Y2.
ConsistencyYisYobtainedYthroughYtheYapplicationYofYtheYsameYaccountingYprinci
pleYfromYperiodYtoYperiod.Y AYchangeYinYprincipleYrequiresYstatementYdisclosure.

1-Y3.
TheYconceptYofYhistoricalYcostYdeterminesYtheYbalanceYsheetYvaluationYofYland.YTheYrea
lizationYconceptYrequiresYthatYaYtransactionYneedsYtoYoccurYforYtheYprofitYtoYbeYrecogniz
ed.

1-Y4. a.Y Entity e.Y HistoricalYcost

b. Realization f.Y HistoricalYcost

c. Materiality g.Y Disclosure

d. Conservatism

,1-Y5. EntityYconcept

, 1-Y6.
GenerallyYacceptedYaccountingYprinciplesYdoYnotYapplyYwhenYaYfirmYdoesYnotYappear
YtoYbeYaYgoingYconcern.Y IfYtheYdecisionYisYmadeYthatYthisYisYnotYaYgoingYconcern,YthenY
theYuseYofYGAAPYwouldYnotYbeYappropriate.

1-Y7.
WithYtheYtimeYperiodYassumption,YinaccuraciesYofYaccountingYforYtheYentity,YshortYofYit
sYcompleteYlifeYspan,YareYaccepted.YTheYassumptionYisYmadeYthatYtheYentityYcanYbeYac
countedYforYreasonablyYaccuratelyYforYaYparticularYperiodYofYtime.Y InYotherYwords,YtheY
decisionYisYmadeYtoYacceptYsomeYinaccuracyYbecauseYofYincompleteYinformationYabo
utYtheYfutureYinYexchangeYforYmoreYtimelyYreporting.Y TheYstatementsYareYconsideredYto
YbeYmeaningfulYbecauseYmaterialYinaccuraciesYareYnotYacceptable.




1- 8.Y Y ItYisYtrueYthatYtheYonlyYaccurateYwayYtoYaccountYforYtheYsuccessYorYfailureYofYanYentityYisY
toYaccumulateYallYtransactionsYfromYtheYopeningYofYbusinessYuntilYtheYbusinessYevent
uallyYliquidates.Y ButYitYisYnotYnecessaryYthatYtheYstatementsYbeYcompletelyYaccurateYi
nYorderYforYthemYtoYbeYmeaningful.

1- 9. a. AYyearYthatYendsYwhenYoperationsYareYatYaYlowYebbYforYtheYyear.

b. TheYaccountingYtimeYperiodYisYendedYonYDecemberY31.

c. AYtwelve-
monthYaccountingYperiodYthatYendsYatYtheYendYofYaYmonthYotherYthanYDecember
Y31.



1-10. Money.

1-
11.Y Y WhenYmoneyYdoesYnotYholdYaYstableYvalue,YtheYfinancialYstatementsYcanYloseY
muchYofYtheirYsignificance.Y ToYtheYextentYthatYmoneyYdoesYnotYremainYstable,YitYloses
YusefulnessYasYtheYstandardYforYmeasuringYfinancialYtransactions.




1-12.
No.Y ThereYisYaYproblemYwithYdeterminingYtheYindexYinYorderYtoYadjustYtheYstatements.
Y TheYitemsYthatYareYincludedYinYtheYindexYmustYbeYrepresentative.YInYaddition,YtheYpric

esYofYitemsYchangeYbecauseYofYvariousYfactors,YsuchYasYquality,Ytechnology,YandYinfla
tion.

Yes.YAYreasonableYadjustmentYtoYtheYstatementsYcanYbeYmadeYforYinflation.

1-13. False.Y AnYarbitraryYwrite-
offYofYinventoryYcannotYbeYjustifiedYunderYtheYconservatismYconcept.Y TheYconservatis
mYconceptYcanYonlyYbeYappliedYwhereYthereYareYalternativeYmeasurementsYandYeachY
ofYtheseYalternativeYmeasurementsYhasYreasonableYsupport.