Solution Manual for Financial Statement Analysis, 13th Edition By Charles H. Gibson

SolutionManualForFinancialStatementAnalysis,
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13thEdition
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ByCharles H.Gibson, Verified Chapter's1 -13 | Complete
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, Chapter1 Introductio n n n n




n to Financial Reporting n n




QUESTIONS

1-1.
n a.
The AICPA is an organization of CPAs that prior to 1973 accepted the p
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rimary responsibility for the development of generally accepted accountin g
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principles. Their role was substantially reduced in 1973 when the Finan cial
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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 Overs ight
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Board was established in 2002.
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b. TheFinancialAccountingStandardsBoardreplacedtheAccounting
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Principles Board as the primary rule-
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makingbodyforaccountingstandards.Itisanindependentorganiza tion and
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includes members other than public accountants.
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c. The SEC hasthe authorityto determine generally accepted accounting
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principles andto regulate theaccountingprofession.TheSEChaselec ted to
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leave much of the determination of generally accepted accountin g
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principles to the private sector. The Financial Accounting Standards Board
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hasplayedthemajorroleinestablishingaccountingstandardssi nce1973.
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Regulationoftheaccountingprofessionwassubstantiallytur ned over to the
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Public Company Accounting OversightsBoard in 2002.
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1-2. n




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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1-3. n




The conceptof historical costsdetermines thebalance sheet valuation of land. The
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realizationconceptrequiresthatatransactionneedstooccurfortheprofit to be
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recognized.
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1- 4. a. Entity
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b. Realization f. Historicalcost n n




c. Materiality g. Disclosure n




d. Conservatism

1-5.
n Entityconceptn

,1-6. n




Generally accepted accounting principles do not apply when a firm does not n n n n n n n n n n n




appear to be a going concern. If the decision is made that this is not a going
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concern, then the use of GAAP would notsbe appropriate.
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1-7. n




With thetime periodassumption, inaccuraciesof accounting fortheentity, sho rtofits
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complete life span, are accepted. The assumption is made that the entit y 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 inco mpleteinformation
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about the future in exchange for more timely reporting. The statements are
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considered to be meaningful because material inaccuracies ar e not acceptable.
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1- 8. Itistruethattheonlyaccuratewaytoaccountforthesuccessorfailureofanen tity is to
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accumulate all transactions from the opening of business until the bu siness
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eventuallyliquidates. Butsitsisnotnecessarythat the statements be co mpletely
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accurate in order for them to be meaningful.
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1- 9. a. Asyearthatendswhenoperationsareatalowebbfortheyear. n n n n n n n n n n n n




b. TheaccountingtimeperiodisendedonDecember31.
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c. Astwelve-
monthaccountingperiodthatendsattheendofamonthotherthanDec ember n n n n n n n n n n n n n n




31.
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1-10. Money.

1-
11. Whenmoneydoesnotsholdastablevalue,thefinancialstatementscan lose n n n n n n n n n n n




much of their significance. To the extentsthatsmoneydoes not remain st able,it
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losesusefulnessasthestandardformeasuringfinancialtransactions.
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1-12.
No. There is a problem with determining the indexsin order to adjust the state
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ments. Theitemsthatareincludedintheindexmustberepresentative. Inad dition,
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the prices of items change because of various factors, such as quality, technology,
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and inflation.
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Yes.Areasonableadjustmenttothestatementscanbemadeforinflation.
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1-13. n n n False. Anarbitrarywrite- n n n




off of inventory cannot be justified under the conservatism concept. The cons
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ervatism concept can only be applied where there are alternative measureme nts
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and each of these alternative measurements has reasonable support.
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, 1-14.
Yes,inventorythathasamarketvaluebelowthehistoricalcostshouldbewr itten
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downinordertorecognizealoss. Thisisdonebasedupontheconcept of
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conservatism. Losses that can be reasonably anticipated should be take n in
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orderto reflectstheleastsfavorableeffect on netsincome ofthe current pe riod.
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