Solution Manual For Financial Statement Analysis,
ky ky ky ky ky
13th Edition
ky
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
ky ky ky ky ky ky ky ky ky ky ky
, Chapter 1 ky
k y Introduction to Financial ky ky
ky Reporting
QUESTIONS
1- 1. a. The AICPA is an organization of CPAs that prior to 1973 accepted the
ky ky ky ky ky ky ky ky ky ky ky ky
primary responsibility for the development of generally accepted
ky ky ky ky ky ky ky ky
accounting principles. Their role was substantially reduced in 1973
ky ky ky ky ky ky ky ky ky
when the Financial Accounting Standards Board was established.
ky ky ky ky ky ky ky ky
Their role was further reduced with the establishment of the Public
k y ky ky ky ky ky ky ky ky ky ky
Company Accounting Oversight Board was established in 2002.
ky ky ky ky ky ky ky ky
b. The Financial Accounting Standards Board replaced the
ky ky ky ky ky ky
Accounting Principles Board as the primary rule-making body for
ky ky ky ky ky ky ky ky ky
accounting standards. It is an independent organization and
ky ky ky ky ky ky ky ky
includes members other than public accountants.
ky ky ky ky ky ky
c. The SEC has the authority to determine generally accepted
ky ky ky ky ky ky ky ky
accounting principles and to regulate the accounting profession. The
ky ky ky ky ky ky ky ky ky
SEC has elected to leave much of the determination of generally
ky ky ky ky ky ky ky ky ky ky ky
accepted accounting principles to the private sector. The Financial
ky ky ky ky ky ky ky k y ky
Accounting Standards Board has played the major role in
ky ky ky ky ky ky ky ky ky
establishing accounting standards since 1973. Regulation of the
ky ky ky ky ky k y ky ky
accounting profession was substantially turned over to the Public
ky ky ky ky ky ky ky ky ky
Company Accounting Oversight Board in 2002.
ky ky ky ky ky ky
1- 2.
ky Consistency is obtained through the application of the same
ky ky ky ky ky ky ky ky
accounting principle from period to period. A change in principle
ky ky ky ky ky ky k y ky ky ky
requires statement disclosure.
ky ky ky
1- 3.
ky The concept of historical cost determines the balance sheet valuation of land.
ky ky ky ky ky ky ky ky ky ky ky
The realization concept requires that a transaction needs to occur for the
ky ky ky ky ky ky ky ky ky ky ky ky
profit to be recognized.
ky ky ky ky
1- 4.
ky a. k y Entity e. k y Historical cost ky
b. Realization f. k y Historical cost ky
c. Materiality g. k y Disclosure
d. Conservatism
1- 5.
ky Entity concept ky
,1- 6.
ky Generally accepted accounting principles do not apply when a firm does
ky ky ky ky ky ky ky ky ky ky
not appear to be a going concern. If the decision is made that this is not a
ky ky ky ky ky ky ky k y ky ky ky ky ky ky ky ky ky
going concern, then the use of GAAP would not be appropriate.
ky ky ky ky ky ky ky ky ky ky ky
1- 7.
ky With the time period assumption, inaccuracies of accounting for the entity,
ky ky ky ky ky ky ky ky ky ky
short of its complete life span, are accepted. The assumption is made that
ky ky ky ky ky ky ky ky ky ky ky ky ky
the entity can be accounted for reasonably accurately for a particular period
ky ky ky ky ky ky ky ky ky ky ky ky
of time. In other words, the decision is made to accept some inaccuracy
ky ky k y ky ky ky ky ky ky ky ky ky ky
because of incomplete information about the future in exchange for more
ky ky ky ky ky ky ky ky ky ky ky
timely reporting. The statements are considered to be meaningful because
ky ky k y ky ky ky ky ky ky ky
material inaccuracies are not acceptable.
ky ky ky ky ky
1- 8. k y k yIt is true that the only accurate way to account for the success or failure of
ky ky ky ky ky ky ky ky ky ky ky ky ky ky ky
ky an entity is to accumulate all transactions from the opening of business
ky ky ky ky ky ky ky ky ky ky ky
ky until the business eventually liquidates. But it is not necessary that the
ky ky ky ky k y ky ky ky ky ky ky
ky statements be completely accurate in order for them to be meaningful.ky ky ky ky ky ky ky ky ky ky
1- 9. a. A year that ends when operations are at a low ebb for the year.
ky ky ky ky ky ky ky ky ky ky ky ky ky
b. The accounting time period is ended on December 31.
ky ky ky ky ky ky ky ky
c. A twelve-month accounting period that ends at the end of a month
ky ky ky ky ky ky ky ky ky ky ky
other than December 31.
ky ky ky ky
1-10. Money.
1-11. k y k When money does not hold a stable value, the financial statements can
y ky ky ky ky ky ky ky ky ky ky ky
ky lose much of their significance. To the extent that money does not remain
ky ky ky ky k y ky ky ky ky ky ky ky
ky stable, it loses usefulness as the standard for measuring financial
ky ky ky ky ky ky ky ky ky
ky transactions.
1-12. No. There is a problem with determining the index in order to adjust the
k y ky ky ky ky ky ky ky ky ky ky ky ky
statements. The items that are included in the index must be
ky k y ky ky ky ky ky ky ky ky ky
representative. In addition, the prices of items change because of various
ky ky ky ky ky ky ky ky ky ky ky
factors, such as quality, technology, and inflation.
ky ky ky ky ky ky ky
Yes. A reasonable adjustment to the statements can be made for inflation.
ky ky ky ky ky ky ky ky ky ky ky
1-13. False. An arbitrary write-off of inventory cannot be justified under the
k y ky ky ky ky ky ky ky ky ky
conservatism concept. The conservatism concept can only be applied
ky ky k y ky ky ky ky ky ky
where there are alternative measurements and each of these alternative
ky ky ky ky ky ky ky ky ky ky
measurements has reasonable support.
ky ky ky ky
1-14. Yes, inventory that has a market value below the historical cost should be
ky ky ky ky ky ky ky ky ky ky ky ky
written down in order to recognize a loss. This is done based upon the
ky ky ky ky ky ky ky ky k y ky ky ky ky ky
concept of conservatism. Losses that can be reasonably anticipated
ky ky ky k y ky ky ky ky ky
should be taken in order to reflect the least favorable effect on net income
ky ky ky ky ky ky ky ky ky ky ky ky ky ky
, of the current period.
ky ky ky ky
ky ky ky ky ky
13th Edition
ky
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
ky ky ky ky ky ky ky ky ky ky ky
, Chapter 1 ky
k y Introduction to Financial ky ky
ky Reporting
QUESTIONS
1- 1. a. The AICPA is an organization of CPAs that prior to 1973 accepted the
ky ky ky ky ky ky ky ky ky ky ky ky
primary responsibility for the development of generally accepted
ky ky ky ky ky ky ky ky
accounting principles. Their role was substantially reduced in 1973
ky ky ky ky ky ky ky ky ky
when the Financial Accounting Standards Board was established.
ky ky ky ky ky ky ky ky
Their role was further reduced with the establishment of the Public
k y ky ky ky ky ky ky ky ky ky ky
Company Accounting Oversight Board was established in 2002.
ky ky ky ky ky ky ky ky
b. The Financial Accounting Standards Board replaced the
ky ky ky ky ky ky
Accounting Principles Board as the primary rule-making body for
ky ky ky ky ky ky ky ky ky
accounting standards. It is an independent organization and
ky ky ky ky ky ky ky ky
includes members other than public accountants.
ky ky ky ky ky ky
c. The SEC has the authority to determine generally accepted
ky ky ky ky ky ky ky ky
accounting principles and to regulate the accounting profession. The
ky ky ky ky ky ky ky ky ky
SEC has elected to leave much of the determination of generally
ky ky ky ky ky ky ky ky ky ky ky
accepted accounting principles to the private sector. The Financial
ky ky ky ky ky ky ky k y ky
Accounting Standards Board has played the major role in
ky ky ky ky ky ky ky ky ky
establishing accounting standards since 1973. Regulation of the
ky ky ky ky ky k y ky ky
accounting profession was substantially turned over to the Public
ky ky ky ky ky ky ky ky ky
Company Accounting Oversight Board in 2002.
ky ky ky ky ky ky
1- 2.
ky Consistency is obtained through the application of the same
ky ky ky ky ky ky ky ky
accounting principle from period to period. A change in principle
ky ky ky ky ky ky k y ky ky ky
requires statement disclosure.
ky ky ky
1- 3.
ky The concept of historical cost determines the balance sheet valuation of land.
ky ky ky ky ky ky ky ky ky ky ky
The realization concept requires that a transaction needs to occur for the
ky ky ky ky ky ky ky ky ky ky ky ky
profit to be recognized.
ky ky ky ky
1- 4.
ky a. k y Entity e. k y Historical cost ky
b. Realization f. k y Historical cost ky
c. Materiality g. k y Disclosure
d. Conservatism
1- 5.
ky Entity concept ky
,1- 6.
ky Generally accepted accounting principles do not apply when a firm does
ky ky ky ky ky ky ky ky ky ky
not appear to be a going concern. If the decision is made that this is not a
ky ky ky ky ky ky ky k y ky ky ky ky ky ky ky ky ky
going concern, then the use of GAAP would not be appropriate.
ky ky ky ky ky ky ky ky ky ky ky
1- 7.
ky With the time period assumption, inaccuracies of accounting for the entity,
ky ky ky ky ky ky ky ky ky ky
short of its complete life span, are accepted. The assumption is made that
ky ky ky ky ky ky ky ky ky ky ky ky ky
the entity can be accounted for reasonably accurately for a particular period
ky ky ky ky ky ky ky ky ky ky ky ky
of time. In other words, the decision is made to accept some inaccuracy
ky ky k y ky ky ky ky ky ky ky ky ky ky
because of incomplete information about the future in exchange for more
ky ky ky ky ky ky ky ky ky ky ky
timely reporting. The statements are considered to be meaningful because
ky ky k y ky ky ky ky ky ky ky
material inaccuracies are not acceptable.
ky ky ky ky ky
1- 8. k y k yIt is true that the only accurate way to account for the success or failure of
ky ky ky ky ky ky ky ky ky ky ky ky ky ky ky
ky an entity is to accumulate all transactions from the opening of business
ky ky ky ky ky ky ky ky ky ky ky
ky until the business eventually liquidates. But it is not necessary that the
ky ky ky ky k y ky ky ky ky ky ky
ky statements be completely accurate in order for them to be meaningful.ky ky ky ky ky ky ky ky ky ky
1- 9. a. A year that ends when operations are at a low ebb for the year.
ky ky ky ky ky ky ky ky ky ky ky ky ky
b. The accounting time period is ended on December 31.
ky ky ky ky ky ky ky ky
c. A twelve-month accounting period that ends at the end of a month
ky ky ky ky ky ky ky ky ky ky ky
other than December 31.
ky ky ky ky
1-10. Money.
1-11. k y k When money does not hold a stable value, the financial statements can
y ky ky ky ky ky ky ky ky ky ky ky
ky lose much of their significance. To the extent that money does not remain
ky ky ky ky k y ky ky ky ky ky ky ky
ky stable, it loses usefulness as the standard for measuring financial
ky ky ky ky ky ky ky ky ky
ky transactions.
1-12. No. There is a problem with determining the index in order to adjust the
k y ky ky ky ky ky ky ky ky ky ky ky ky
statements. The items that are included in the index must be
ky k y ky ky ky ky ky ky ky ky ky
representative. In addition, the prices of items change because of various
ky ky ky ky ky ky ky ky ky ky ky
factors, such as quality, technology, and inflation.
ky ky ky ky ky ky ky
Yes. A reasonable adjustment to the statements can be made for inflation.
ky ky ky ky ky ky ky ky ky ky ky
1-13. False. An arbitrary write-off of inventory cannot be justified under the
k y ky ky ky ky ky ky ky ky ky
conservatism concept. The conservatism concept can only be applied
ky ky k y ky ky ky ky ky ky
where there are alternative measurements and each of these alternative
ky ky ky ky ky ky ky ky ky ky
measurements has reasonable support.
ky ky ky ky
1-14. Yes, inventory that has a market value below the historical cost should be
ky ky ky ky ky ky ky ky ky ky ky ky
written down in order to recognize a loss. This is done based upon the
ky ky ky ky ky ky ky ky k y ky ky ky ky ky
concept of conservatism. Losses that can be reasonably anticipated
ky ky ky k y ky ky ky ky ky
should be taken in order to reflect the least favorable effect on net income
ky ky ky ky ky ky ky ky ky ky ky ky ky ky
, of the current period.
ky ky ky ky
