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 p! p! p! p! p! p!
Financial Accounting p!
Question 1–1 p!
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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oriented companies to their present and potential investors and creditors.
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Question 1–2 p!
Resources are efficiently allocated if they are given to enterprises that will use the
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m to provide goods and services desired by society and not to enterprises that will wast
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e them. The capital markets are the mechanism that fosters this efficient allocation of
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resources.
Question 1–3 p!
Two extremely important variables that must be considered in any investment dec
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ision are the expected rate of return and the uncertainty or risk of that expected return.
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Question 1–4 p!
In the long run, a company will be able to provide investors and creditors with a r
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ate of return only if it can generate a profit. That is, it must be able to use the resources
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provided to it to generate cash receipts from selling a product or service that exceed th
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e cash disbursements necessary to provide that product or service.
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Question 1–5 p!
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 p!
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 servi
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ces to customers. Net operating cash flows may not be a good indicator of future cash f
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lows because, by ignoring uncompleted transactions, they may not match the accompli
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shments and sacrifices of the period. p! p! p! p! p!
,Question 1–7 p!
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 the
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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 com
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panies to make their resource allocation decisions.
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Question 1–8 p!
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 re
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tained the power, but has relied on private sector bodies to create the standards. The cu
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rrent private sector body responsible for setting accounting standards is the FASB.
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Question 1–9 p!
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 stateme
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nts' fairness, which is determined by the extent to which they are prepared in complian
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ce with GAAP. The auditor adds credibility to the financial statements, which increas
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es the confidence of capital market participants relying on that information.
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, Question 1–10 p!
Key provisions included in the text are:
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Creation of the Public Company Accounting Oversight Board p! p! p! p! p! p! p!
Regulate types of non-audit audit services p! p! p! p! p!
Require lead audit partner rotation every 5 year p! p! p! p! p! p! p!
Corporate executive accountability p! p!
Addresses conflicts of interest for security analysts p! p! p! p! p! p!
Internal control reporting and auditor opinion about controls
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Question 1–11 p!
New accounting standards, or changes in standards, can have significant differenti
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al effects on companies, investors and creditors, and other interest groups by causing r
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edistribution of wealth. There also is the possibility that standards could harm the eco
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nomy as a whole by causing companies to change their behavior.
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Question 1–12 p!
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 acco
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unting, as well as to anticipate adverse economic consequences.
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Question 1–13 p!
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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p! p! p! p! p! p! p!p! p!
David Spiceland, Mark Nelson, Wayne Thomas, Jennifer
p! p! p! p! p! p!
,Chapter 1 Environment and Theoretical Structure of p! p! p! p! p! p!
Financial Accounting p!
Question 1–1 p!
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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oriented companies to their present and potential investors and creditors.
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Question 1–2 p!
Resources are efficiently allocated if they are given to enterprises that will use the
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m to provide goods and services desired by society and not to enterprises that will wast
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e them. The capital markets are the mechanism that fosters this efficient allocation of
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resources.
Question 1–3 p!
Two extremely important variables that must be considered in any investment dec
p! p! p! p! p! p! p! p! p! p! p!
ision are the expected rate of return and the uncertainty or risk of that expected return.
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Question 1–4 p!
In the long run, a company will be able to provide investors and creditors with a r
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ate of return only if it can generate a profit. That is, it must be able to use the resources
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provided to it to generate cash receipts from selling a product or service that exceed th
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e cash disbursements necessary to provide that product or service.
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Question 1–5 p!
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 p!
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 servi
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ces to customers. Net operating cash flows may not be a good indicator of future cash f
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lows because, by ignoring uncompleted transactions, they may not match the accompli
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shments and sacrifices of the period. p! p! p! p! p!
,Question 1–7 p!
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 the
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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 com
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panies to make their resource allocation decisions.
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Question 1–8 p!
In 1934, Congress created the SEC and gave it the job of setting accounting and r
p! p! p! p! p! p! p! p! p! p! p! p! p! p! p!
eporting standards for companies whose securities are publicly traded. The SEC has re
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tained the power, but has relied on private sector bodies to create the standards. The cu
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rrent private sector body responsible for setting accounting standards is the FASB.
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Question 1–9 p!
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 stateme
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nts' fairness, which is determined by the extent to which they are prepared in complian
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ce with GAAP. The auditor adds credibility to the financial statements, which increas
p! p! p ! p! p! p! p! p! p! p! p! p!
es the confidence of capital market participants relying on that information.
p! p! p! p! p! p! p! p! p! p!
, Question 1–10 p!
Key provisions included in the text are:
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Creation of the Public Company Accounting Oversight Board p! p! p! p! p! p! p!
Regulate types of non-audit audit services p! p! p! p! p!
Require lead audit partner rotation every 5 year p! p! p! p! p! p! p!
Corporate executive accountability p! p!
Addresses conflicts of interest for security analysts p! p! p! p! p! p!
Internal control reporting and auditor opinion about controls
p! p! p! p! p! p! p!
Question 1–11 p!
New accounting standards, or changes in standards, can have significant differenti
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al effects on companies, investors and creditors, and other interest groups by causing r
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edistribution of wealth. There also is the possibility that standards could harm the eco
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nomy as a whole by causing companies to change their behavior.
p! p! p! p! p! p! p! p! p! p!
Question 1–12 p!
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 acco
p! p! p! p! p! p! p! p! p! p! p! p! p!
unting, as well as to anticipate adverse economic consequences.
p! p! p! p! p! p! p! p!
Question 1–13 p!
The purpose of the conceptual framework is to guide the Board in developing acc
p! p! p! p! p! p! p! p! p! p! p! p! p!
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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