Solution Manual For Financial Statement Analysis,
c c c c c
13th Edition
c
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
c c c c c c c c c c c
, Chapter c1
cIntroduction cto cFinancial
cReporting
QUESTIONS
1- 1. a. The cAICPA cis can corganization cof cCPAs cthat cprior cto c1973 caccepted
cthe cprimary cresponsibility cfor cthe cdevelopment cof cgenerally caccepted
caccounting cprinciples. cTheir crole cwas csubstantially creduced cin c1973
cwhen cthe cFinancial cAccounting cStandards cBoard cwas cestablished.
c Their crole cwas cfurther creduced cwith cthe cestablishment cof cthe cPublic
cCompany cAccounting cOversight cBoard cwas cestablished cin c2002.
b. The cFinancial cAccounting cStandards cBoard creplaced cthe
cAccounting cPrinciples cBoard cas cthe cprimary crule-making cbody cfor
caccounting cstandards. cIt cis can cindependent corganization cand
cincludes cmembers cother cthan cpublic caccountants.
c. The cSEC chas cthe cauthority cto cdetermine cgenerally caccepted
caccounting cprinciples cand cto cregulate cthe caccounting cprofession. cThe
cSEC chas celected cto cleave cmuch cof cthe cdetermination cof cgenerally
caccepted caccounting cprinciples cto cthe cprivate csector. c The cFinancial
cAccounting cStandards cBoard chas cplayed cthe cmajor crole cin
cestablishing caccounting cstandards csince c1973. c Regulation cof cthe
caccounting cprofession cwas csubstantially cturned cover cto cthe cPublic
cCompany cAccounting cOversight cBoard cin c2002.
1- c2. Consistency cis cobtained cthrough cthe capplication cof cthe csame
caccounting cprinciple cfrom cperiod cto cperiod. c A cchange cin cprinciple
crequires cstatement cdisclosure.
1- c3. The cconcept cof chistorical ccost cdetermines cthe cbalance csheet cvaluation cof
cland. cThe crealization cconcept crequires cthat ca ctransaction cneeds cto coccur cfor
cthe cprofit cto cbe crecognized.
1- c4. a. c Entity e. c Historical ccost
b. Realization f. c Historical ccost
c. Materiality g. c Disclosure
d. Conservatism
1- c5. Entity cconcept
,1- c6. Generally caccepted caccounting cprinciples cdo cnot capply cwhen ca cfirm cdoes
cnot cappear cto cbe ca cgoing cconcern. c If cthe cdecision cis cmade cthat cthis cis cnot
ca cgoing cconcern, cthen cthe cuse cof cGAAP cwould cnot cbe cappropriate.
1- c7. With cthe ctime cperiod cassumption, cinaccuracies cof caccounting cfor cthe centity,
cshort cof cits ccomplete clife cspan, care caccepted. cThe cassumption cis cmade cthat
cthe centity ccan cbe caccounted cfor creasonably caccurately cfor ca cparticular
cperiod cof ctime. c In cother cwords, cthe cdecision cis cmade cto caccept csome
cinaccuracy cbecause cof cincomplete cinformation cabout cthe cfuture cin cexchange
cfor cmore ctimely creporting. c The cstatements care cconsidered cto cbe
cmeaningful cbecause cmaterial cinaccuracies care cnot cacceptable.
1- 8. c c It cis ctrue cthat cthe conly caccurate cway cto caccount cfor cthe csuccess cor cfailure
cof can centity cis cto caccumulate call ctransactions cfrom cthe copening cof cbusiness
cuntil cthe cbusiness ceventually cliquidates. c But cit cis cnot cnecessary cthat cthe
cstatements cbe ccompletely caccurate cin corder cfor cthem cto cbe cmeaningful.
1- 9. a. A cyear cthat cends cwhen coperations care cat ca clow cebb cfor cthe cyear.
b. The caccounting ctime cperiod cis cended con cDecember c31.
c. A ctwelve-month caccounting cperiod cthat cends cat cthe cend cof ca cmonth
cother cthan cDecember c31.
1-10. Money.
1-11. c c When cmoney cdoes cnot chold ca cstable cvalue, cthe cfinancial cstatements ccan
close cmuch cof ctheir csignificance. c To cthe cextent cthat cmoney cdoes cnot
cremain cstable, cit closes cusefulness cas cthe cstandard cfor cmeasuring cfinancial
ctransactions.
1-12. No. c There cis ca cproblem cwith cdetermining cthe cindex cin corder cto cadjust cthe
cstatements. c The citems cthat care cincluded cin cthe cindex cmust cbe
crepresentative. cIn caddition, cthe cprices cof citems cchange cbecause cof cvarious
cfactors, csuch cas cquality, ctechnology, cand cinflation.
Yes. cA creasonable cadjustment cto cthe cstatements ccan cbe cmade cfor cinflation.
1-13. False. c An carbitrary cwrite-off cof cinventory ccannot cbe cjustified cunder cthe
cconservatism cconcept. c The cconservatism cconcept ccan conly cbe capplied
cwhere cthere care calternative cmeasurements cand ceach cof cthese calternative
cmeasurements chas creasonable csupport.
1-14. Yes, cinventory cthat chas ca cmarket cvalue cbelow cthe chistorical ccost cshould
cbe cwritten cdown cin corder cto crecognize ca closs. c This cis cdone cbased cupon
cthe cconcept cof cconservatism. c Losses cthat ccan cbe creasonably canticipated
cshould cbe ctaken cin corder cto creflect cthe cleast cfavorable ceffect con cnet
, cincome cof cthe ccurrent cperiod.
c c c c c
13th Edition
c
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
c c c c c c c c c c c
, Chapter c1
cIntroduction cto cFinancial
cReporting
QUESTIONS
1- 1. a. The cAICPA cis can corganization cof cCPAs cthat cprior cto c1973 caccepted
cthe cprimary cresponsibility cfor cthe cdevelopment cof cgenerally caccepted
caccounting cprinciples. cTheir crole cwas csubstantially creduced cin c1973
cwhen cthe cFinancial cAccounting cStandards cBoard cwas cestablished.
c Their crole cwas cfurther creduced cwith cthe cestablishment cof cthe cPublic
cCompany cAccounting cOversight cBoard cwas cestablished cin c2002.
b. The cFinancial cAccounting cStandards cBoard creplaced cthe
cAccounting cPrinciples cBoard cas cthe cprimary crule-making cbody cfor
caccounting cstandards. cIt cis can cindependent corganization cand
cincludes cmembers cother cthan cpublic caccountants.
c. The cSEC chas cthe cauthority cto cdetermine cgenerally caccepted
caccounting cprinciples cand cto cregulate cthe caccounting cprofession. cThe
cSEC chas celected cto cleave cmuch cof cthe cdetermination cof cgenerally
caccepted caccounting cprinciples cto cthe cprivate csector. c The cFinancial
cAccounting cStandards cBoard chas cplayed cthe cmajor crole cin
cestablishing caccounting cstandards csince c1973. c Regulation cof cthe
caccounting cprofession cwas csubstantially cturned cover cto cthe cPublic
cCompany cAccounting cOversight cBoard cin c2002.
1- c2. Consistency cis cobtained cthrough cthe capplication cof cthe csame
caccounting cprinciple cfrom cperiod cto cperiod. c A cchange cin cprinciple
crequires cstatement cdisclosure.
1- c3. The cconcept cof chistorical ccost cdetermines cthe cbalance csheet cvaluation cof
cland. cThe crealization cconcept crequires cthat ca ctransaction cneeds cto coccur cfor
cthe cprofit cto cbe crecognized.
1- c4. a. c Entity e. c Historical ccost
b. Realization f. c Historical ccost
c. Materiality g. c Disclosure
d. Conservatism
1- c5. Entity cconcept
,1- c6. Generally caccepted caccounting cprinciples cdo cnot capply cwhen ca cfirm cdoes
cnot cappear cto cbe ca cgoing cconcern. c If cthe cdecision cis cmade cthat cthis cis cnot
ca cgoing cconcern, cthen cthe cuse cof cGAAP cwould cnot cbe cappropriate.
1- c7. With cthe ctime cperiod cassumption, cinaccuracies cof caccounting cfor cthe centity,
cshort cof cits ccomplete clife cspan, care caccepted. cThe cassumption cis cmade cthat
cthe centity ccan cbe caccounted cfor creasonably caccurately cfor ca cparticular
cperiod cof ctime. c In cother cwords, cthe cdecision cis cmade cto caccept csome
cinaccuracy cbecause cof cincomplete cinformation cabout cthe cfuture cin cexchange
cfor cmore ctimely creporting. c The cstatements care cconsidered cto cbe
cmeaningful cbecause cmaterial cinaccuracies care cnot cacceptable.
1- 8. c c It cis ctrue cthat cthe conly caccurate cway cto caccount cfor cthe csuccess cor cfailure
cof can centity cis cto caccumulate call ctransactions cfrom cthe copening cof cbusiness
cuntil cthe cbusiness ceventually cliquidates. c But cit cis cnot cnecessary cthat cthe
cstatements cbe ccompletely caccurate cin corder cfor cthem cto cbe cmeaningful.
1- 9. a. A cyear cthat cends cwhen coperations care cat ca clow cebb cfor cthe cyear.
b. The caccounting ctime cperiod cis cended con cDecember c31.
c. A ctwelve-month caccounting cperiod cthat cends cat cthe cend cof ca cmonth
cother cthan cDecember c31.
1-10. Money.
1-11. c c When cmoney cdoes cnot chold ca cstable cvalue, cthe cfinancial cstatements ccan
close cmuch cof ctheir csignificance. c To cthe cextent cthat cmoney cdoes cnot
cremain cstable, cit closes cusefulness cas cthe cstandard cfor cmeasuring cfinancial
ctransactions.
1-12. No. c There cis ca cproblem cwith cdetermining cthe cindex cin corder cto cadjust cthe
cstatements. c The citems cthat care cincluded cin cthe cindex cmust cbe
crepresentative. cIn caddition, cthe cprices cof citems cchange cbecause cof cvarious
cfactors, csuch cas cquality, ctechnology, cand cinflation.
Yes. cA creasonable cadjustment cto cthe cstatements ccan cbe cmade cfor cinflation.
1-13. False. c An carbitrary cwrite-off cof cinventory ccannot cbe cjustified cunder cthe
cconservatism cconcept. c The cconservatism cconcept ccan conly cbe capplied
cwhere cthere care calternative cmeasurements cand ceach cof cthese calternative
cmeasurements chas creasonable csupport.
1-14. Yes, cinventory cthat chas ca cmarket cvalue cbelow cthe chistorical ccost cshould
cbe cwritten cdown cin corder cto crecognize ca closs. c This cis cdone cbased cupon
cthe cconcept cof cconservatism. c Losses cthat ccan cbe creasonably canticipated
cshould cbe ctaken cin corder cto creflect cthe cleast cfavorable ceffect con cnet
, cincome cof cthe ccurrent cperiod.
