Solution Manual
Accounting What The Numbers Mean
13th Edition by David Marshall
All Chapters 1 - 16
,CHAPTER
1
Accounting—Present and Past
CHAPTER OUTLINE:
I. What Is Accounting?
A. Definition
B. Uses of Accounting Information
C. Classifications
1. Financial Accounting
2. Managerial Accounting / Cost Accounting
3. Auditing — Public Accounting
4. Internal Auditing
5. Governmental and Not-for-Profit Accounting
6. Income Tax Accounting
II. How Has Accounting Developed?
A. Early History
B. The Accounting Profession in the United States
C. Financial Accounting Standard Setting at the Present Time
1. Financial Accounting Standards Board
2. Standards are Evolving
D. Standards for Other Types of Accounting
1. Managerial Accounting / Cost Accounting
2. Auditing
3. Governmental and Not-for-Profit Accounting
4. Income Tax Accounting
E. International Accounting Standards
F. Ethics and the Accounting Profession
III. The Conceptual Framework
A. Context
B. Summary of Concepts Statement No. 8, Chapter 1 — The Objective of General
PurposeFinancial Reporting
C. Objectives of Financial Reporting for Nonbusiness Organizations
IV. Plan of the Book
,TEACHING/LEARNING OBJECTIVES:
Principal:
1. To present a definition of accounting.
2. To identify and describe different classifications of accounting.
3. To emphasize that financial accounting standards are not a ―fixed code of rules,‖
but are established in response to user needs and business developments.
Accountants need to apply professional judgment in the application of accounting
principles.
4. To emphasize the role and sources of ethics for the accounting profession.
Supporting:
5. To summarize how accounting has evolved over time.
6. To identify sources of standards for other types of accounting and to contrast
these with financial accounting standards.
7. To introduce the issues associated with the development of international
accounting standards.
8. To describe the context of the FASB Conceptual Framework project.
9. To summarize Concepts Statement No. 8, Chapter 1 — The Objective of General
PurposeFinancial Reporting.
10. To relate the objectives of financial reporting for nonbusiness organizations to
those of business enterprises.
TEACHING OBSERVATIONS/ASSIGNMENT SUGGESTIONS:
1. Students should be put on notice about the jargon of accounting, the use of
synonymous terms, the importance of the context within which a term is used, and
the need for precision in the use of terminology. The first example of jargon is the
term entity.
,2. When discussing "Auditing — Public Accounting," have students find the auditors'
opinion in the Campbell Soup Company 2020 Annual Report (see pages 87-88 of
the Appendix). Emphasize that a "clean opinion" is not a "clean bill of health."
3. Discuss the Summary of Concepts Statement No. 8, Chapter 1 — The Objective of
Financial Reporting, in detail.
,4. Assign Exercise 1-1. Encourage students to experiment with websites that are of
interest. In addition, or as an alternative to having students request their own
annual reports, distribute reports that have been obtained by the instructor.
5. Use Exercise 1-5 to generate discussion about the importance of ethical standards
in general and independence (in both appearance and fact) in particular. Follow up
with a brief look at Exercise 1-7 concerning audit independence standards.
SOLUTIONS:
E1.3. This exercise provides an opportunity to gauge where the students are in
terms of their prior background in accounting, be it practical or
educational, and to clear up some of the common misconceptions (i.e., to
explain that accounting goes
beyond the ―how to‖ aspects of bookkeeping and involves the use of
judgment).
E1.4. This exercise provides an opportunity to align student and instructor
expectations. For first-time instructors in this course, or for those having a
diverse student group, you will get a glimpse at the common perceptions
students have concerning the course content, level of difficulty, and
methods of presentation,
testing/evaluation, and grading.
E1.5. The principal factors Jim Sandrolini must consider are his competence and
independence. Is he competent to prepare financial statements for a
company thatoperates in a different industry than the one in which he
works? Accepting a contingent fee arrangement would normally cause an
impairment of his
independence because he would directly benefit if the loan were to be
approved.
,E1.6. Suggested discussion strategy:
Q: Why does a business have value?
A: It provides the owners an opportunity to earn a profit, an opportunity
for personal fulfillment from being in charge, and an opportunity to
provide a product or service that is useful to others.
Q: How can this value be measured?
A: Financial information will have the most to do with evaluating the firm‘s
profitability, and the financial statements include this information.
Q: How is an asking price for the sale of a business established?
A: The asking price should be a function of the profit, resources, and
obligationsrelated to the business as shown in the financial statements.
Note: This exercise also provides an opportunity to point out some of the
basic limitations of the data provided by the accounting process (e.g.,
historical cost information — how useful are past earnings results in
predicting future earningsand cash flows?). Be careful not to get too
carried away with details. Let the
students lead this discussion.
,E1.7. Answers will vary depending on the search engines used by students to
locate the
requested information.
E1.8. Answers will vary depending on the company selected. Note that
requirement d
provides an opportunity to discuss some of the financial statement terms
that areintroduced in Chapter 2, for those instructors wishing to get a
head start.
CHAPTER
2 Financial Statements and
Accounting Concepts/Principles
CHAPTER OUTLINE:
I. Financial Statements
A. From Transactions to Financial Statements
B. Financial Statements Illustrated
1. Explanations and Definitions
a. Balance Sheet
b. Income Statement
c. Statement of Changes in Stockholders' Equity
d. Statement of Cash Flows
2. Comparative Statements in Subsequent Years
3. Illustration of Financial Statement Relationships
II. Accounting Concepts and Principles
A. Schematic Model of Concepts and Principles
B. Concepts/Principles Related to the Entire Model
C. Concepts/Principles Related to Transactions
D. Concepts/Principles Related to Bookkeeping Procedures and the Accounting Process
E. Concepts/Principles Related to Financial Statements
F. Limitations of Financial Statements
III. The Corporation‘s Annual Report
,TEACHING/LEARNING OBJECTIVES:
Principal:
1. To illustrate the four principal financial statements and their basic form.
2. To introduce students to the terminology of financial statements.
3. To present the accounting equation.
4. To explain several of the concepts of financial accounting and financial
statement presentation.
Supporting:
5. To explain that financial statements are the product of financial accounting and
that the statements represent a historical summary of transactions.
6. To explain some of the limitations of financial statements.
7. To illustrate that the financial statements are included in the corporation‘s annual report.
8. To introduce and explain several business procedures and their terminology.
TEACHING OBSERVATIONS:
1. This is the keystone chapter of the text, and the material presented here becomes a
foundation for all subsequent financial accounting topics. The instructor must resist
trying to teach the entire course from this one chapter! Instead, try to help
students sort out the key ideas that must be learned now from those that they
should be acquainted with, but that will really be learned when subsequent material
is covered. Items to be learned now include:
a. What a transaction is.
b. The name of each financial statement and what it shows.
c. The accounting equation.
d. Financial statement relationships.
e. Limitations of financial statements.
2. A significant amount of time should be spent illustrating and explaining the purpose
and content—by account category (asset, liability, stockholders' equity, revenue,
expense)—of each financial statement, and how the financial statements tie together.
,Some instructors may wish to discuss gains and losses at this point, but the key is to
keep it as simple as possible!
, 3. It is recommended that the following models be emphasized:
a. Balance Sheet:
Assets = Liabilities + Stockholders'
Beginning of Period $ $ Equity
$
Changes During +/- +/- +/
Period -
End of Period $ $ $
b. Income Statement: Revenues
-
Expense
s
= Net Income
c. Statement of Changes in Stockholders’ Equity:
Beginning Balance of Stockholders' Equity
+ Stockholders' Investment
+ Net Income
- Dividends
= Ending Balance of Stockholders' Equity
(As with the discussion of gains and losses, some instructors may wish to acknowledge
―other‖ sources of changes in stockholders‘ equity such as treasury stock,
accumulated other comprehensive income, prior period adjustments, etc. This is a
function of instructor preference and the extent to which students have been
previously exposed to real world financial statements. An early dose of ―reality‖ can
be refreshing for graduate students, but might be distracting to a younger, less
experienced audience.)
d. Statement of Cash Flows:
Net Income
+/- Net cash provided (used) by operating activities
+/- Net cash provided (used) by investing activities
+/- Net cash provided (used) by financing activities
= Net increase (decrease) in cash for the year
4. It is helpful to spend time with the concepts and principles model, explaining
what each concept/principle means and showing how it relates to the
"Transactions to Financial Statements" process.
Accounting What The Numbers Mean
13th Edition by David Marshall
All Chapters 1 - 16
,CHAPTER
1
Accounting—Present and Past
CHAPTER OUTLINE:
I. What Is Accounting?
A. Definition
B. Uses of Accounting Information
C. Classifications
1. Financial Accounting
2. Managerial Accounting / Cost Accounting
3. Auditing — Public Accounting
4. Internal Auditing
5. Governmental and Not-for-Profit Accounting
6. Income Tax Accounting
II. How Has Accounting Developed?
A. Early History
B. The Accounting Profession in the United States
C. Financial Accounting Standard Setting at the Present Time
1. Financial Accounting Standards Board
2. Standards are Evolving
D. Standards for Other Types of Accounting
1. Managerial Accounting / Cost Accounting
2. Auditing
3. Governmental and Not-for-Profit Accounting
4. Income Tax Accounting
E. International Accounting Standards
F. Ethics and the Accounting Profession
III. The Conceptual Framework
A. Context
B. Summary of Concepts Statement No. 8, Chapter 1 — The Objective of General
PurposeFinancial Reporting
C. Objectives of Financial Reporting for Nonbusiness Organizations
IV. Plan of the Book
,TEACHING/LEARNING OBJECTIVES:
Principal:
1. To present a definition of accounting.
2. To identify and describe different classifications of accounting.
3. To emphasize that financial accounting standards are not a ―fixed code of rules,‖
but are established in response to user needs and business developments.
Accountants need to apply professional judgment in the application of accounting
principles.
4. To emphasize the role and sources of ethics for the accounting profession.
Supporting:
5. To summarize how accounting has evolved over time.
6. To identify sources of standards for other types of accounting and to contrast
these with financial accounting standards.
7. To introduce the issues associated with the development of international
accounting standards.
8. To describe the context of the FASB Conceptual Framework project.
9. To summarize Concepts Statement No. 8, Chapter 1 — The Objective of General
PurposeFinancial Reporting.
10. To relate the objectives of financial reporting for nonbusiness organizations to
those of business enterprises.
TEACHING OBSERVATIONS/ASSIGNMENT SUGGESTIONS:
1. Students should be put on notice about the jargon of accounting, the use of
synonymous terms, the importance of the context within which a term is used, and
the need for precision in the use of terminology. The first example of jargon is the
term entity.
,2. When discussing "Auditing — Public Accounting," have students find the auditors'
opinion in the Campbell Soup Company 2020 Annual Report (see pages 87-88 of
the Appendix). Emphasize that a "clean opinion" is not a "clean bill of health."
3. Discuss the Summary of Concepts Statement No. 8, Chapter 1 — The Objective of
Financial Reporting, in detail.
,4. Assign Exercise 1-1. Encourage students to experiment with websites that are of
interest. In addition, or as an alternative to having students request their own
annual reports, distribute reports that have been obtained by the instructor.
5. Use Exercise 1-5 to generate discussion about the importance of ethical standards
in general and independence (in both appearance and fact) in particular. Follow up
with a brief look at Exercise 1-7 concerning audit independence standards.
SOLUTIONS:
E1.3. This exercise provides an opportunity to gauge where the students are in
terms of their prior background in accounting, be it practical or
educational, and to clear up some of the common misconceptions (i.e., to
explain that accounting goes
beyond the ―how to‖ aspects of bookkeeping and involves the use of
judgment).
E1.4. This exercise provides an opportunity to align student and instructor
expectations. For first-time instructors in this course, or for those having a
diverse student group, you will get a glimpse at the common perceptions
students have concerning the course content, level of difficulty, and
methods of presentation,
testing/evaluation, and grading.
E1.5. The principal factors Jim Sandrolini must consider are his competence and
independence. Is he competent to prepare financial statements for a
company thatoperates in a different industry than the one in which he
works? Accepting a contingent fee arrangement would normally cause an
impairment of his
independence because he would directly benefit if the loan were to be
approved.
,E1.6. Suggested discussion strategy:
Q: Why does a business have value?
A: It provides the owners an opportunity to earn a profit, an opportunity
for personal fulfillment from being in charge, and an opportunity to
provide a product or service that is useful to others.
Q: How can this value be measured?
A: Financial information will have the most to do with evaluating the firm‘s
profitability, and the financial statements include this information.
Q: How is an asking price for the sale of a business established?
A: The asking price should be a function of the profit, resources, and
obligationsrelated to the business as shown in the financial statements.
Note: This exercise also provides an opportunity to point out some of the
basic limitations of the data provided by the accounting process (e.g.,
historical cost information — how useful are past earnings results in
predicting future earningsand cash flows?). Be careful not to get too
carried away with details. Let the
students lead this discussion.
,E1.7. Answers will vary depending on the search engines used by students to
locate the
requested information.
E1.8. Answers will vary depending on the company selected. Note that
requirement d
provides an opportunity to discuss some of the financial statement terms
that areintroduced in Chapter 2, for those instructors wishing to get a
head start.
CHAPTER
2 Financial Statements and
Accounting Concepts/Principles
CHAPTER OUTLINE:
I. Financial Statements
A. From Transactions to Financial Statements
B. Financial Statements Illustrated
1. Explanations and Definitions
a. Balance Sheet
b. Income Statement
c. Statement of Changes in Stockholders' Equity
d. Statement of Cash Flows
2. Comparative Statements in Subsequent Years
3. Illustration of Financial Statement Relationships
II. Accounting Concepts and Principles
A. Schematic Model of Concepts and Principles
B. Concepts/Principles Related to the Entire Model
C. Concepts/Principles Related to Transactions
D. Concepts/Principles Related to Bookkeeping Procedures and the Accounting Process
E. Concepts/Principles Related to Financial Statements
F. Limitations of Financial Statements
III. The Corporation‘s Annual Report
,TEACHING/LEARNING OBJECTIVES:
Principal:
1. To illustrate the four principal financial statements and their basic form.
2. To introduce students to the terminology of financial statements.
3. To present the accounting equation.
4. To explain several of the concepts of financial accounting and financial
statement presentation.
Supporting:
5. To explain that financial statements are the product of financial accounting and
that the statements represent a historical summary of transactions.
6. To explain some of the limitations of financial statements.
7. To illustrate that the financial statements are included in the corporation‘s annual report.
8. To introduce and explain several business procedures and their terminology.
TEACHING OBSERVATIONS:
1. This is the keystone chapter of the text, and the material presented here becomes a
foundation for all subsequent financial accounting topics. The instructor must resist
trying to teach the entire course from this one chapter! Instead, try to help
students sort out the key ideas that must be learned now from those that they
should be acquainted with, but that will really be learned when subsequent material
is covered. Items to be learned now include:
a. What a transaction is.
b. The name of each financial statement and what it shows.
c. The accounting equation.
d. Financial statement relationships.
e. Limitations of financial statements.
2. A significant amount of time should be spent illustrating and explaining the purpose
and content—by account category (asset, liability, stockholders' equity, revenue,
expense)—of each financial statement, and how the financial statements tie together.
,Some instructors may wish to discuss gains and losses at this point, but the key is to
keep it as simple as possible!
, 3. It is recommended that the following models be emphasized:
a. Balance Sheet:
Assets = Liabilities + Stockholders'
Beginning of Period $ $ Equity
$
Changes During +/- +/- +/
Period -
End of Period $ $ $
b. Income Statement: Revenues
-
Expense
s
= Net Income
c. Statement of Changes in Stockholders’ Equity:
Beginning Balance of Stockholders' Equity
+ Stockholders' Investment
+ Net Income
- Dividends
= Ending Balance of Stockholders' Equity
(As with the discussion of gains and losses, some instructors may wish to acknowledge
―other‖ sources of changes in stockholders‘ equity such as treasury stock,
accumulated other comprehensive income, prior period adjustments, etc. This is a
function of instructor preference and the extent to which students have been
previously exposed to real world financial statements. An early dose of ―reality‖ can
be refreshing for graduate students, but might be distracting to a younger, less
experienced audience.)
d. Statement of Cash Flows:
Net Income
+/- Net cash provided (used) by operating activities
+/- Net cash provided (used) by investing activities
+/- Net cash provided (used) by financing activities
= Net increase (decrease) in cash for the year
4. It is helpful to spend time with the concepts and principles model, explaining
what each concept/principle means and showing how it relates to the
"Transactions to Financial Statements" process.
