Solution Manual For
Intermediate Accounting,
11th Edition by David
Spiceland, Mark Nelson,
Wayne Thomas, Jennifer
LATEST UPDATE 1OO% A+
,Chapter 1 Environment and Theoretical Structure of
Financial Accounting
Question 1–1
Fina ncial acco unting is concerned with providing relevant fina ncial information about various kinds of
organizations to different types of external users. The primary focus of financial accounting is on the financial
information provided by profit-oriented companies to their present and potential investors and creditors.
Question 1–2
Resources are efficiently allocated if they are given to enterprises that will use them to provide goods
and services desired by society and not to enterprises that will waste them. The capital markets are the
mechanism that fosters this efficient allocation of resources.
Question 1–3
Two extremely important variables that must be considered in any investment decision are the expected
rate of return and the uncertainty or risk of that expected return.
Question 1–4
In the long run, a company will be able to provide investors and creditors with a rate of return only if it
can generate a profit. That is, it must be able to use the resources provided to it to generate cash receipts
from selling a product or service that exceed the cash disbursements necessary to provide that product or
service.
Question 1–5
The primary objective of fina ncial acco unting is to provide investors and creditors with informatio n that
will help them make investment and credit decisions.
Question 1–6
Net operating cash flows are the difference between cash receipts and cash disbursements during a
period of time from transactions related to providing goods and services to custo mers. Net operating cash
flows may not be a good indicator of future cash flows because, by ignoring uncompleted transactions, they
may not match the accomplishments and sacrifices of the period.
,Question 1–7
GAAP (generally accepted accounting principles) are a dynamic set of both broad and specific
guidelines tha t a company should follow in measuring and reporting the information in their financial
statements and related notes. It is important that all companies follow GAAP so that investors can compare
financial information across companies to make their resource allocation decisions.
Question 1–8
In 1934, Congress created the SEC and gave it the job of setting accounting and reporting standards for
companies whose securities are publicly traded. The SEC has retained the power, but has relied on private
sector bodies to create the standards. The current private sector body responsible for setting accounting
standards is the FASB.
Question 1–9
Auditors are independent, professional accountants who examine financial s tatements to express an
opinion. The opinion reflects the auditors‗ assessment of the statements' fairness, which is determined by the
extent to which they are prepared in compliance with GAAP. The a uditor adds credibility to the financial
statements, which increases the confidence of capital market participants relying on that information.
, Question 1–10
Key provisions included in the text are:
Creation of the Public Company Accounting Oversight Board
Regulate types of non-audit audit services
Require lead audit partner rotation every 5 year
Corporate executive accountability
Addresses conflicts of interest for security analysts
Internal control reporting and auditor opinion about controls
Question 1–11
New accounting standards, or changes in standards, can have significant differential effects on
companies, investors and creditors, and other interest groups by causing redistribution of wealth. There also
is the possibility that s tandards could harm the econo my as a whole by causing companies to cha nge their
behavior.
Question 1–12
The FASB undertakes a series of elaborate information gathering steps before issuing an accounting
standard to determine consensus as to the preferred method of accounting, as well as to anticipa te adverse
economic consequences.
Question 1–13
The purpose of the co nceptual framework is to g uide the Board in develo ping accounting sta ndards by
providing an underlying foundation and basic reasoning on which to consider merits of alternatives. The
framework does not prescribe GAAP.
Intermediate Accounting,
11th Edition by David
Spiceland, Mark Nelson,
Wayne Thomas, Jennifer
LATEST UPDATE 1OO% A+
,Chapter 1 Environment and Theoretical Structure of
Financial Accounting
Question 1–1
Fina ncial acco unting is concerned with providing relevant fina ncial information about various kinds of
organizations to different types of external users. The primary focus of financial accounting is on the financial
information provided by profit-oriented companies to their present and potential investors and creditors.
Question 1–2
Resources are efficiently allocated if they are given to enterprises that will use them to provide goods
and services desired by society and not to enterprises that will waste them. The capital markets are the
mechanism that fosters this efficient allocation of resources.
Question 1–3
Two extremely important variables that must be considered in any investment decision are the expected
rate of return and the uncertainty or risk of that expected return.
Question 1–4
In the long run, a company will be able to provide investors and creditors with a rate of return only if it
can generate a profit. That is, it must be able to use the resources provided to it to generate cash receipts
from selling a product or service that exceed the cash disbursements necessary to provide that product or
service.
Question 1–5
The primary objective of fina ncial acco unting is to provide investors and creditors with informatio n that
will help them make investment and credit decisions.
Question 1–6
Net operating cash flows are the difference between cash receipts and cash disbursements during a
period of time from transactions related to providing goods and services to custo mers. Net operating cash
flows may not be a good indicator of future cash flows because, by ignoring uncompleted transactions, they
may not match the accomplishments and sacrifices of the period.
,Question 1–7
GAAP (generally accepted accounting principles) are a dynamic set of both broad and specific
guidelines tha t a company should follow in measuring and reporting the information in their financial
statements and related notes. It is important that all companies follow GAAP so that investors can compare
financial information across companies to make their resource allocation decisions.
Question 1–8
In 1934, Congress created the SEC and gave it the job of setting accounting and reporting standards for
companies whose securities are publicly traded. The SEC has retained the power, but has relied on private
sector bodies to create the standards. The current private sector body responsible for setting accounting
standards is the FASB.
Question 1–9
Auditors are independent, professional accountants who examine financial s tatements to express an
opinion. The opinion reflects the auditors‗ assessment of the statements' fairness, which is determined by the
extent to which they are prepared in compliance with GAAP. The a uditor adds credibility to the financial
statements, which increases the confidence of capital market participants relying on that information.
, Question 1–10
Key provisions included in the text are:
Creation of the Public Company Accounting Oversight Board
Regulate types of non-audit audit services
Require lead audit partner rotation every 5 year
Corporate executive accountability
Addresses conflicts of interest for security analysts
Internal control reporting and auditor opinion about controls
Question 1–11
New accounting standards, or changes in standards, can have significant differential effects on
companies, investors and creditors, and other interest groups by causing redistribution of wealth. There also
is the possibility that s tandards could harm the econo my as a whole by causing companies to cha nge their
behavior.
Question 1–12
The FASB undertakes a series of elaborate information gathering steps before issuing an accounting
standard to determine consensus as to the preferred method of accounting, as well as to anticipa te adverse
economic consequences.
Question 1–13
The purpose of the co nceptual framework is to g uide the Board in develo ping accounting sta ndards by
providing an underlying foundation and basic reasoning on which to consider merits of alternatives. The
framework does not prescribe GAAP.
