solution_manual_for__intermediate_accounting__11th_edition_by_david_spiceland

Solution Manual For Intermediate Accounting, 11th Edition by
David Spiceland, Mark Nelson, Wayne Thomas, Jennifer

,Chapter1 Environment andTheoretical Structure of
Financial Accounting

Question 1–1 H


Financial accounting is concerned with providing relevant financial information a
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bout various kinds of organizations to different types of external users. The primary fo
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cus of financial accounting is on the financial information provided by profit-
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Horiented companies to their present and potential investors and creditors.
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Question 1–2 H


Resources are efficiently allocated if they are given to enterprises that will use th
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em to provide goods and services desired by society and not to enterprises that will w
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aste them. The capital markets are the mechanism that fosters this efficient allocation
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of resources.
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Question 1–3 H


Two extremely important variables that must be considered in any investment de
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cision are the expected rate of return and the uncertainty or risk of that expected retur
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n.

Question 1–4 H


In the long run, a company will be able to provide investors and creditors with a
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rate of return only if it can generate a profit. That is, it must be able to use the resourc
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es provided to it to generate cash receipts from selling a product or service that exceed
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Hthe cash disbursements necessary to provide that product or service.
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Question 1–5 H


The primary objective of financial accounting is to provide investors and creditor
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s with information that will help them make investment and credit decisions.
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Question 1–6 H


Net operating cash flows are the difference between cash receipts and cash disbur
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sements during a period of time from transactions related to providing goods and serv
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ices to customers. Net operating cash flows may not be a good indicator of future cash
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Hflows because, by ignoring uncompleted transactions, they may not match the accom
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plishments and sacrifices of the period. H H H H H

,Question 1–7 H


GAAP (generally accepted accounting principles) are a dynamic set of both broa
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d and specific guidelines that a company should follow in measuring and reporting th
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e information in their financial statements and related notes. It is important that all co
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mpanies follow GAAP so that investors can compare financial information across co
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mpanies to make their resource allocation decisions.
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Question 1–8 H


In 1934, Congress created the SEC and gave it the job of setting accounting and r
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eporting standards for companies whose securities are publicly traded. The SEC has r
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etained the power, but has relied on private sector bodies to create the standards. The
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current private sector body responsible for setting accounting standards is the FASB.
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Question 1–9 H


Auditors are independent, professional accountants who examine financial statem
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ents to express an opinion. The opinion reflects the auditors‘ assessment of the statem
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ents' fairness, which is determined by the extent to which they are prepared in complia
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nce with GAAP. The auditor adds credibility to the financial statements, which increa
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ses the confidence of capital market participants relying on that information.
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, Question 1–10 H


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
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 Require lead audit partner rotation every 5 year
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 Corporate executive accountability H H


 Addresses conflicts of interest for security analysts
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 Internal control reporting and auditor opinion about controls
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Question 1–11 H


New accounting standards, or changes in standards, can have significant different
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ial effects on companies, investors and creditors, and other interest groups by causing
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redistribution of wealth. There also is the possibility that standards could harm the ec
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onomy as a whole by causing companies to change their behavior.
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Question 1–12 H


The FASB undertakes a series of elaborate information gathering steps before iss
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uing an accounting standard to determine consensus as to the preferred method of acc
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ounting, as well as to anticipate adverse economic consequences.
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Question 1–13 H


The purpose of the conceptual framework is to guide the Board in developing acc
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ounting standards by providing an underlying foundation and basic reasoning on whic
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h to consider merits of alternatives. The framework does not prescribe GAAP.
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