Solution Manual For Intermediate Accounting, 11th Edition by
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David Spiceland, Mark Nelson, Wayne Thomas, Jennifer
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,Chapter 1 Environment and Theoretical Structure of 9 9 9 9 9 9
Financial Accounting 9
Question 1–1 9
Financial accounting is concerned with providing relevant financial information abo
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ut various kinds of organizations to different types of external users. The primary focus of
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financial accounting is on the financial information provided by profit-
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9oriented companies to their present and potential investors and creditors.
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Question 1–2 9
Resources are efficiently allocated if they are given to enterprises that will use them t
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o provide goods and services desired by society and not to enterprises that will waste them
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. The capital markets are the mechanism that fosters this efficient allocation of resources.
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Question 1–3 9
Two extremely important variables that must be considered in any investment decisi
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on are the expected rate of return and the uncertainty or risk of that expected return.
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Question 1–4 9
In the long run, a company will be able to provide investors and creditors with a rate o
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f return only if it can generate a profit. That is, it must be able to use the resources provided
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to it to generate cash receipts from selling a product or service that exceed the cash disbur
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sements necessary to provide that product or service.
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Question 1–5 9
The primary objective of financial accounting is to provide investors and creditors w
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ith information that will help them make investment and credit decisions.
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Question 1–6 9
Net operating cash flows are the difference between cash receipts and cash disburse
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ments during a period of time from transactions related to providing goods and services to
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customers. Net operating cash flows may not be a good indicator of future cash flows bec
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ause, by ignoring uncompleted transactions, they may not match the accomplishments an
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d sacrifices of the period.
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,Question 1–7 9
GAAP (generally accepted accounting principles) are a dynamic set of both broad a
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nd specific guidelines that a company should follow in measuring and reporting the infor
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mation in their financial statements and related notes. It is important that all companies fo
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llow GAAP so that investors can compare financial information across companies to mak
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e their resource allocation decisions.
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Question 1–8 9
In 1934, Congress created the SEC and gave it the job of setting accounting and repor
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ting standards for companies whose securities are publicly traded. The SEC has retained t
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he power, but has relied on private sector bodies to create the standards. The current privat
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e sector body responsible for setting accounting standards is the FASB.
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Question 1–9 9
Auditors are independent, professional accountants who examine financial statemen
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ts to express an opinion. The opinion reflects the auditors‗ assessment of the statements' fa
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irness, which is determined by the extent to which they are prepared in compliance with G
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AAP. The auditor adds credibility to the financial statements, which increases the confide
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nce of capital market participants relying on that information.
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, Question 1–10 9
Key provisions included in the text are:
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Creation of the Public Company Accounting Oversight Board
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Regulate types of non-audit audit services 9 9 9 9 9
Require lead audit partner rotation every 5 year
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Corporate executive accountability 9 9
Addresses conflicts of interest for security analysts 9 9 9 9 9 9
Internal control reporting and auditor opinion about controls
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Question 1–11 9
New accounting standards, or changes in standards, can have significant differential
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effects on companies, investors and creditors, and other interest groups by causing redistr
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ibution of wealth. There also is the possibility that standards could harm the economy as a
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whole by causing companies to change their behavior.
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Question 1–12 9
The FASB undertakes a series of elaborate information gathering steps before issuin
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g an accounting standard to determine consensus as to the preferred method of accounting
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, as well as to anticipate adverse economic consequences.
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Question 1–13 9
The purpose of the conceptual framework is to guide the Board in developing accoun
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ting standards by providing an underlying foundation and basic reasoning on which to co
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nsider merits of alternatives. The framework does not prescribe GAAP.
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9 9 9 9 9 9 99 9
David Spiceland, Mark Nelson, Wayne Thomas, Jennifer
9 9 9 9 9 9
,Chapter 1 Environment and Theoretical Structure of 9 9 9 9 9 9
Financial Accounting 9
Question 1–1 9
Financial accounting is concerned with providing relevant financial information abo
9 9 9 9 9 9 9 9 9
ut various kinds of organizations to different types of external users. The primary focus of
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
financial accounting is on the financial information provided by profit-
9 9 9 9 9 9 9 9 9
9oriented companies to their present and potential investors and creditors.
9 9 9 9 9 9 9 9 9
Question 1–2 9
Resources are efficiently allocated if they are given to enterprises that will use them t
9 9 9 9 9 9 9 9 9 9 9 9 9 9
o provide goods and services desired by society and not to enterprises that will waste them
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
. The capital markets are the mechanism that fosters this efficient allocation of resources.
9 9 9 9 9 9 9 9 9 9 9 9 9
Question 1–3 9
Two extremely important variables that must be considered in any investment decisi
9 9 9 9 9 9 9 9 9 9 9
on are the expected rate of return and the uncertainty or risk of that expected return.
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
Question 1–4 9
In the long run, a company will be able to provide investors and creditors with a rate o
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
f return only if it can generate a profit. That is, it must be able to use the resources provided
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
to it to generate cash receipts from selling a product or service that exceed the cash disbur
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
sements necessary to provide that product or service.
9 9 9 9 9 9 9
Question 1–5 9
The primary objective of financial accounting is to provide investors and creditors w
9 9 9 9 9 9 9 9 9 9 9 9
ith information that will help them make investment and credit decisions.
9 9 9 9 9 9 9 9 9 9
Question 1–6 9
Net operating cash flows are the difference between cash receipts and cash disburse
9 9 9 9 9 9 9 9 9 9 9 9
ments during a period of time from transactions related to providing goods and services to
9 9 9 9 9 9 9 9 9 9 9 9 9 9
customers. Net operating cash flows may not be a good indicator of future cash flows bec
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
ause, by ignoring uncompleted transactions, they may not match the accomplishments an
9 9 9 9 9 9 9 9 9 9 9
d sacrifices of the period.
9 9 9 9
,Question 1–7 9
GAAP (generally accepted accounting principles) are a dynamic set of both broad a
9 9 9 9 9 9 9 9 9 9 9 9
nd specific guidelines that a company should follow in measuring and reporting the infor
9 9 9 9 9 9 9 9 9 9 9 9 9
mation in their financial statements and related notes. It is important that all companies fo
9 9 9 9 9 9 9 9 9 9 9 9 9 9
llow GAAP so that investors can compare financial information across companies to mak
9 9 9 9 9 9 9 9 9 9 9 9
e their resource allocation decisions.
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Question 1–8 9
In 1934, Congress created the SEC and gave it the job of setting accounting and repor
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
ting standards for companies whose securities are publicly traded. The SEC has retained t
9 9 9 9 9 9 9 9 9 9 9 9 9
he power, but has relied on private sector bodies to create the standards. The current privat
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
e sector body responsible for setting accounting standards is the FASB.
9 9 9 9 9 9 9 9 9 9
Question 1–9 9
Auditors are independent, professional accountants who examine financial statemen
9 9 9 9 9 9 9 9
ts to express an opinion. The opinion reflects the auditors‗ assessment of the statements' fa
9 9 9 9 9 9 9 9 9 9 9 9 9 9
irness, which is determined by the extent to which they are prepared in compliance with G
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
AAP. The auditor adds credibility to the financial statements, which increases the confide
9 9 9 9 9 9 9 9 9 9 9 9
nce of capital market participants relying on that information.
9 9 9 9 9 9 9 9
, Question 1–10 9
Key provisions included in the text are:
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Creation of the Public Company Accounting Oversight Board
9 9 9 9 9 9 9
Regulate types of non-audit audit services 9 9 9 9 9
Require lead audit partner rotation every 5 year
9 9 9 9 9 9 9
Corporate executive accountability 9 9
Addresses conflicts of interest for security analysts 9 9 9 9 9 9
Internal control reporting and auditor opinion about controls
9 9 9 9 9 9 9
Question 1–11 9
New accounting standards, or changes in standards, can have significant differential
9 9 9 9 9 9 9 9 9 9 9
effects on companies, investors and creditors, and other interest groups by causing redistr
9 9 9 9 9 9 9 9 9 9 9 9
ibution of wealth. There also is the possibility that standards could harm the economy as a
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
whole by causing companies to change their behavior.
9 9 9 9 9 9 9
Question 1–12 9
The FASB undertakes a series of elaborate information gathering steps before issuin
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g an accounting standard to determine consensus as to the preferred method of accounting
9 9 9 9 9 9 9 9 9 9 9 9 9
, as well as to anticipate adverse economic consequences.
9 9 9 9 9 9 9 9
Question 1–13 9
The purpose of the conceptual framework is to guide the Board in developing accoun
9 9 9 9 9 9 9 9 9 9 9 9 9
ting standards by providing an underlying foundation and basic reasoning on which to co
9 9 9 9 9 9 9 9 9 9 9 9 9
nsider merits of alternatives. The framework does not prescribe GAAP.
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