Solution Manual for Financial Statement Analysis, 13th Edition By Charles H. Gibson ISBN: 9781133188797

SolutionManual For Financial StatementAnalysis,
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13thEdition
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By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
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, Chapter1 Introductio m
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n to Financial Reporting
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QUESTIONS

1- 1.
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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 thePublic CompanyAccountingOvers 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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makingbodyforaccounting standards.Itisanindependentorganiza tion
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and includes members other than public accountants.
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c. The SEC has the authority to determine generally accepted accounting
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principles and to regulate the accounting profession. The SEC has elec ted
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to leave much of the determination of generally accepted accountin g
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principles to the private sector. The Financial Accounting Standards
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Boardhas played the major role in establishing accounting standards si nce
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1973. Regulationoftheaccountingprofession wassubstantiallytur ned
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over to the Public Company Accounting OversightsBoard in 2002.
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1-2. m
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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. m
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The concept of historical costsdetermines the balance sheet valuation of land. The
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realizationconcept requiresthata transactionneedstooccurfortheprofit to be
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recognized.
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1- 4. a. Entity
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b. Realization f. Historicalcost n m nm




c. Materiality g. Disclosure n m




d. Conservatism

1-5.
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,1-6. m
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Generally accepted accounting principles do not apply when a firm does not nm m
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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. m
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With the time period assumption, inaccuracies of accounting for the entity, sho rt of
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its 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 mplete
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information about the future in exchange formore timelyreporting. The statements
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are considered to be meaningful because material inaccuracies ar e not
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acceptable.
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1- 8. It is true that the onlyaccurate wayto accountforthesuccessor failureof an en tity is to
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accumulate all transactions from the opening of business until the bu siness
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eventually liquidates. Butsitsis not necessary that the statements be co mpletely
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accurate in order for them to be meaningful.
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1- 9. a. Asyearthat ends when operations are at a lowebbforthe year. nm nm nm nm nm nm nm nm m
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b. Theaccountingtime period is endedon December31.
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c. Astwelve-
month accountingperiod thatendsattheendof amonthotherthanDec ember nm m
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31.
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1-10. Money.

1-
11. Whenmoneydoesnotsholda stable value,thefinancialstatementscan lose m
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much of their significance. To the extentsthatsmoney does not remain st able, it
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loses usefulnessas the standardformeasuringfinancialtransactions.
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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. The items that are included in the index must be representative. In ad
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dition, the prices of items change because of various factors, such as quality,
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technology, and inflation.
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Yes.A reasonableadjustmentto the statements canbemadefor inflation.
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1-13. n m n m nFalse. An arbitrary write-
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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, inventorythathasa market value belowthe historicalcost shouldbe wr itten
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down in orderto recognize a loss. Thisis donebasedupon theconcept of
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conservatism. Losses that can be reasonably anticipated should be take n in
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order to reflectsthe leastsfavorable effect on netsincome of the current pe riod.
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