SOLUTION MANUAL
ii
ALL CHAPTERS 1 - 16
ii ii ii ii ii
,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 PURPOSEiiFINANCIAL 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 WITHFINANCIAL ACCOUNTING
STANDARDS.
7. TO INTRODUCE THE ISSUES ASSOCIATED WITH THE DEVELOPMENT OF
INTERNATIONAL ACCOUNTINGSTANDARDS.
8. TO DESCRIBE THE CONTEXT OF THE FASB CONCEPTUAL FRAMEWORK PROJECT.
9. TO SUMMARIZE CONCEPTS STATEMENT NO. 8, CHAPTER 1 — THE
OBJECTIVE OF GENERAL PURPOSEiiFINANCIAL REPORTING.
10. TO RELATE THE OBJECTIVES OF FINANCIAL REPORTING FOR NONBUSINESS
ORGANIZATIONS TO THOSE OFBUSINESS 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 PRECISIONIN
, THE USE OF TERMINOLOGY. THE FIRST EXAMPLE OF JARGON IS THE TERM
ENTITY.
2. WHEN DISCUSSING "AUDITING — PUBLIC ACCOUNTING," HAVE STUDENTS
FIND THE AUDITORS' OPINIONIN 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 FINANCIALREPORTING, IN DETAIL.
,4. ASSIGN EXERCISE 1-1. ENCOURAGE STUDENTS TO EXPERIMENT WITH
WEBSITES THAT ARE OF INTEREST. INADDITION, 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 GENERALiiAND INDEPENDENCE (IN BOTH APPEARANCE
AND FACT) IN PARTICULAR. FOLLOW UP WITH A BRIEF LOOK ATEXERCISE 1-7
CONCERNING AUDIT INDEPENDENCE STANDARDS.
SOLUTIONS:
E1.3. THIS EXERCISE PROVIDES AN OPPORTUNITY TO GAUGE WHERE THE
STUDENTS ARE IN TERMS OFiiTHEIR 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 FORPERSONAL 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‘SPROFITABILITY, 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 AREiiINTRODUCED 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
ii
ALL CHAPTERS 1 - 16
ii ii ii ii ii
,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 PURPOSEiiFINANCIAL 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 WITHFINANCIAL ACCOUNTING
STANDARDS.
7. TO INTRODUCE THE ISSUES ASSOCIATED WITH THE DEVELOPMENT OF
INTERNATIONAL ACCOUNTINGSTANDARDS.
8. TO DESCRIBE THE CONTEXT OF THE FASB CONCEPTUAL FRAMEWORK PROJECT.
9. TO SUMMARIZE CONCEPTS STATEMENT NO. 8, CHAPTER 1 — THE
OBJECTIVE OF GENERAL PURPOSEiiFINANCIAL REPORTING.
10. TO RELATE THE OBJECTIVES OF FINANCIAL REPORTING FOR NONBUSINESS
ORGANIZATIONS TO THOSE OFBUSINESS 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 PRECISIONIN
, THE USE OF TERMINOLOGY. THE FIRST EXAMPLE OF JARGON IS THE TERM
ENTITY.
2. WHEN DISCUSSING "AUDITING — PUBLIC ACCOUNTING," HAVE STUDENTS
FIND THE AUDITORS' OPINIONIN 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 FINANCIALREPORTING, IN DETAIL.
,4. ASSIGN EXERCISE 1-1. ENCOURAGE STUDENTS TO EXPERIMENT WITH
WEBSITES THAT ARE OF INTEREST. INADDITION, 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 GENERALiiAND INDEPENDENCE (IN BOTH APPEARANCE
AND FACT) IN PARTICULAR. FOLLOW UP WITH A BRIEF LOOK ATEXERCISE 1-7
CONCERNING AUDIT INDEPENDENCE STANDARDS.
SOLUTIONS:
E1.3. THIS EXERCISE PROVIDES AN OPPORTUNITY TO GAUGE WHERE THE
STUDENTS ARE IN TERMS OFiiTHEIR 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 FORPERSONAL 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‘SPROFITABILITY, 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 AREiiINTRODUCED 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
