Solution manual for intermediate accounting 3rd edition elizabeth a gordon jana s raedy alexander j sannella_compressed

The Financial Reporting Environment bgh bgh bgh




bgh Solutions
CHAPTER 1 bgh




Questions

Q1-1 Financial b information
g h is a much broader concept than b g h b g h b g h b g h b g h b g h b g h



bsimply
g h the financial statements and footnotes to the financial
b g h b g h bgh b g h b g h b g h b g h b g h



statements. Financial information includes items such as the President‘s
b g h b g h b g h b g h b g h bgh b g h b g h b g h



letter to the owners, management‘s discussion and analysis, the auditors‘
b g h b g h b g h b g h b g h b g h b g h b g h b g h bgh



report, the management report and press releases. Of course, the basic
b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h



financial statements and
b g h footnotes are included bgh in the term financial b g h b g h b g h b g h b g h b g h b g h b g h



binformation.
g h The basic financial statements are: the balance sheet (also b g h b g h bgh b g h b g h b g h b g h b g h b g h



referred to as the statement of b g h b g h b g h b g h b g h



financial position),
b g h the statement of comprehensive
bgh income (also b g h b g h b g h b g h b g h b g h



breferred
g h to as the statement of net income b and g the h statement b g h b g h b g h b g h bgh b g h b g h b g h b g h



bof g comprehensive
h b income),
g h the statement of cash flows, and the b g h b g h b g h b g h b g h b g h bgh b g h



statement of shareholders‘ equity. Financial information is not synonymous
b g h b g h b g h b g h b g h b g h b g h b g h b g h



with the
b g h term financial
bgh statements because b the financial
g h statements b g h b g h b g h b g h b g h b g h



bareg ha subset of b the different types of financial information
g h b g h b g h b g h bgh b g h b g h b g h b g h



provided.
b g h




Q1-2 The purpose of generating financial statements is to provide useful
b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h



information to users to evaluate economic entities and make efficient
b g h b g h bgh b g h b g h b g h b g h b g h b g h b g h



bresource allocation
g h decisions based on the risks and returns of a
b g h b g h bgh b g h b g h b g h b g h b g h b g h b g h



particular investment. The Financial Accounting Standards Board (FASB)
b g h b g h b g h b g h b g h b g h b g h b g h



identifies investors, lenders and other creditors as the primary users of
b g h b g h b g h b g h b g h b g h b g h b g h b g h bgh b g h



the financial statements. The financial statements are the culmination of
b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h



the financial reporting process.
b g h b g h b g h b g h




Q1-3 Capital is a scarce resource. Investors and creditors have to make
b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h



decisions as to how much capital to invest in any given entity;
b g h b g h b g h bgh b g h b g h b g h b g h b g h b g h b g h b g h



therefore, they demand relevant and faithfully representative information
b g h b g h b g h b g h b g h bgh b g h b g h



about the economic performance and financial position
b g h b g h of a company. b g h b g h b g h b g h bgh b g h b g h b g h



bThis
g information
h is provided in the financial
b g h statements. b g h b g h b g h b g h b g h b g h




Q1-4 External auditors ensure that the management of a company has
b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h



prepared financial statements in accordance with Generally Accepted
b g h b g h b g h b g h b g h b g h b g h b g h



bAccounting Principles and
g h fairly present the financial position and b g h b g h b g h bgh b g h b g h b g h b g h



economic performance of a company. In addition, external auditors
b g h b g h b g h b g h b g h b g h b g h bgh b g h



bmust
g be
h an independent party b and cannot
g h be employees of b g h b g h b g h b g h b g h b g h b g h b g h



bthe company they are auditing.
g h bgh External auditors provide a significant b g h b g h b g h b g h b g h b g h b g h b g h



bamount
g h of credibility to the financial statements. b g h b g h bgh b g h b g h b g h




Q1-5 Data analytics is
b g h b g h b g h b g h the process of b g h b g h b g h analyzing large data sets in b g h b g h b g h b g h



order to draw useful
b g h b g h b g h b g h b g hconclusions. It b g h b g h involves converting raw data into b g h b g h b g h b g h

, useful knowledge. In financial
b g h b g h b g h b g h



reporting, data analytics can be
b g h b g h b g h b g h b g h used b g h to b g h improve b g h the b g h quality b g h of b g h estimates
b and valuations.
g h b g h




Q1-6 Standard setters create accounting concepts, rules, and guidelines to
b g h b g h b g h b g h b g h b g h b g h b g h b g h



ensure that financial statements accurately present the economic
b g h b g h bgh b g h b g h b g h b g h b g h



performance and financial position of a firm. The standards encourage
b g h b g h b g h b g h bgh b g h b g h b g h b g h b g h



transparent and truthful reporting.
b g h b g h b g h b g h

,
, 1 -2bgh bgh SO LUT IO N S
bgh bgh M AN UAL
bgh bgh bgh bgh bgh bgh b g h bgh bgh bgh bgh bgh b g h FO R bgh bgh b g h I N T ERM ED IA T
bgh bgh bgh bgh bgh bgh bgh bgh bgh bgh


E A C C O U N T ING


Q1-7 U.S. companies listed on U.S. stock exchanges do not have
b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h



the option to report under IFRS. However, foreign companies that
b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h



trade in the U.S. exchanges can report under IFRS. The SEC
b g h b g h b g h b g h b g h b g h b g h bgh b g h b g h b g h



permits the use of IFRS-based financial statements by international
b g h b g h b g h b g h b g h b g h b g h b g h bgh



companies with shares trading on U.S. stock exchanges.
b g h b g h b g h b g h b g h b g h b g h b g h




Q1-8 The FASB
b seeks
g h and welcomes comments from all
b g h b g h b g h b g h b g h b g h b g h



parties
b g in
h the financial reporting process including managers, investors,
b g h b g h b g h bgh b g h b g h b g h b g h



accountants, preparers, creditors, lenders, financial statement users,
b g h b g h b g h b g h bgh b g h b g h



governmental agencies, financial analysts, industry groups, and auditors.
b g h b g h b g h b g h b g h bgh b g h bgh



FASB also receives feedback from public roundtable discussions, public
b g h b g h b g h b g h b g h b g h b g h b g h b g h



meetings, the FASAC, the Private Company Council, and EITF.
b g h b g h b g h b g h b g h b g h b g h b g h b g h




Q1-9 Yes, the promulgation of financial accounting standards is a political
b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h



b process.
g h



There are several groups that influence the standard setting process. The
b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h



standard setting process is a political process that is affected by the
b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h



impact of several lobbying groups.
b g h b g h The government, through the SEC,
b g h b g h b g h b g h b g h b g h b g h b g h



influences accounting standards. The SEC has the authority to issue
b g h b g h b g h b g h b g h b g h b g h bgh b g h b g h



accounting standards but has assigned this responsibility to the private
b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h



sector. Nonetheless, the SEC can exert pressure on the FASB to issue
bgh b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h



accounting
b g h standards and veto the standards promulgated b by the
g h b g h b g h b g h b g h b g h b g h b g h



FASB.
b g Auditing
h firms, the corporate sector, creditors, financial
b g h b g h b g h bgh b g h b g h b g h



analysts, the financial community, accounting organizations,
b g h b g h industry groups, b g h b g h b g h bgh b g h b g h



and
b ginvestors can
h influence
b g theh FASB by written comments about b g h b g h b g h b g h b g h b g h bgh b g h



Exposure Drafts and participation in public meetings and public
b g h b g h b g h b g h b g h b g h b g h b g h b g h



roundtables regarding a proposed financial reporting standard.
bgh b g h b g h b g h b g h b g h b g h




Q1-10 A principles-based standard is consistent with a theoretical
b g h b g h b g h b g h b g h b g h b g h b g h



framework. In contrast, a rules-based standard does not necessarily rely
b g h b g h bgh b g h b g h b g h b g h b g h b g h b g h



on a consistent theoretical framework. Rather, it contains more specific
b g h b g h b g h b g h bgh b g h b g h b g h b g h b g h



and prescriptive rules.
b g h b g h b g h




Q1-11 Recently, the FASB has taken an asset/liability approach in
b g h b g h b g h b g h b g h b g h b g h b g h b g h



setting standards. With this approach, a transaction is recorded based
b g h b g h bgh b g h b g h b g h b g h b g h b g h b g h



on whether an asset or liability is
b g h b g h created. Another trend has b g h b g h b g h b g h b g h b g h b g h b g h b g h



been the movement toward the use of fair value measurements as
b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h



an alternative to historical cost. FASB has also focused on the
b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h b g h



promulgation of principles-based standards instead of rules-based
bgh b g h b g h b g h b g h b g h b g h



standards.
b g h




Brief b g h Exercises

bgh Solution to BE1-1 bgh bgh




General-purpose financial statements provide general financial information b g h b g h b g h b g h b g h b g h



about an entity that will be useful to many types of users. General-
b g h b g h b g h bgh b g h b g h b g h b g h b g h b g h b g h b g h b g h



purpose financial statements provide information to a wide spectrum of
b g h b g h b g h b g h b g h b g h b g h b g h b g h



user groups: investors, creditors, financial analysts, customers, employees,
b g h b g h b g h b g h b g h b g h bgh b g h



competitors, suppliers, unions, and government agencies. Most financial
b g h b g h b g h b g h b g h b g h b g h bgh




© 2021 Pearson Education,
bgh bgh bgh


Inc.