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