Solution Manual For Intermediate Accounting, 11th Edition by
B! B! B! B! B! B! B!B!
David Spiceland, Mark Nelson, Wayne Thomas, Jennifer
B! B! B! B! B! B! B!
,Chapter 1 Environment and Theoretical Structure of B! B! B! B! B! B!
Financial Accounting B!
Question 1–1 B!
Financial accounting is concerned with providing relevant financial information
B! B! B! B! B! B! B! B! B!
about various kinds of organizations to different types of external users. The primary
B! B! B! B! B! B! B! B! B! B! B! B! B!
focus of financial accounting is on the financial information provided by profit-
B! B! B! B! B! B! B! B! B! B! B!
oriented companies to their present and potential investors and creditors.
B! B! B! B! B! B! B! B! B! B!
Question 1–2 B!
Resources are efficiently allocated if they are given to enterprises that will use t
B! B! B! B! B! B! B! B! B! B! B! B! B!
hem to provide goods and services desired by society and not to enterprises that will
B! B! B! B! B! B! B! B! B! B! B! B! B! B! B!
waste them. The capital markets are the mechanism that fosters this efficient allocati
B! B! B! B! B! B! B! B! B! B! B ! B!
on of resources.
B! B!
Question 1–3 B!
Two extremely important variables that must be considered in any investment d
B! B! B! B! B! B! B! B! B! B! B!
ecision are the expected rate of return and the uncertainty or risk of that expected ret
B! B! B! B! B! B! B! B! B! B! B! B! B! B! B!
urn.
Question 1–4 B!
In the long run, a company will be able to provide investors and creditors with a
B! B! B! B! B! B! B! B! B! B! B! B! B! B! B!
rate of return only if it can generate a profit. That is, it must be able to use the resou
B! B! B! B! B! B! B! B! B! B! B! B! B! B! B! B! B! B! B! B!
rces provided to it to generate cash receipts from selling a product or service that exc
B! B! B! B! B! B! B! B! B! B! B! B! B! B! B!
eed the cash disbursements necessary to provide that product or service.
B! B! B! B! B! B! B! B! B! B!
Question 1–5 B!
The primary objective of financial accounting is to provide investors and credit
B! B! B! B! B! B! B! B! B! B ! B!
ors with information that will help them make investment and credit decisions.
B! B! B! B! B! B! B! B! B! B! B!
Question 1–6 B!
Net operating cash flows are the difference between cash receipts and cash disbu
B! B! B! B! B! B! B! B! B! B! B! B!
rsements during a period of time from transactions related to providing goods and se
B! B! B! B! B! B! B! B ! B! B! B! B! B!
rvices to customers. Net operating cash flows may not be a good indicator of future c
B! B! B! B! B! B! B! B! B! B! B! B! B! B! B!
ash flows because, by ignoring uncompleted transactions, they may not match the acc
B! B! B! B! B! B! B! B! B! B! B! B!
omplishments and sacrifices of the period. B! B! B! B! B!
,Question 1–7 B!
GAAP (generally accepted accounting principles) are a dynamic set of both bro
B! B! B! B! B! B! B! B! B ! B! B!
ad and specific guidelines that a company should follow in measuring and reporting
B! B! B! B! B! B! B! B! B! B! B ! B! B!
the information in their financial statements and related notes. It is important that al
B! B! B! B! B! B! B! B! B ! B ! B! B! B!
l companies follow GAAP so that investors can compare financial information across
B! B! B! B! B! B! B! B! B! B! B!
companies to make their resource allocation decisions.
B! B! B! B! B! B! B!
Question 1–8 B!
In 1934, Congress created the SEC and gave it the job of setting accounting and
B! B! B! B! B! B! B! B! B! B! B! B! B! B! B!
reporting standards for companies whose securities are publicly traded. The SEC has
B! B! B! B! B! B! B! B! B! B! B! B!
retained the power, but has relied on private sector bodies to create the standards. Th
B! B! B! B! B! B! B! B! B! B! B! B! B! B!
e current private sector body responsible for setting accounting standards is the FAS
B! B! B! B! B! B! B! B! B! B! B! B!
B.
Question 1–9 B!
Auditors are independent, professional accountants who examine financial state
B! B! B! B! B! B! B! B!
ments to express an opinion. The opinion reflects the auditors‘ assessment of the stat
B! B! B! B! B! B! B! B! B! B! B! B! B!
ements' fairness, which is determined by the extent to which they are prepared in co
B! B! B! B! B! B! B! B! B! B! B! B! B! B!
mpliance with GAAP. The auditor adds credibility to the financial statements, which
B! B! B ! B! B! B! B! B! B! B! B!
increases the confidence of capital market participants relying on that information.
B! B! B! B! B! B! B! B! B! B! B!
, Question 1–10 B!
Key provisions included in the text are:
B! B! B! B! B! B!
Creation of the Public Company Accounting Oversight Board
B! B! B! B! B! B! B!
Regulate types of non-audit audit services B! B! B! B! B!
Require lead audit partner rotation every 5 year
B! B! B! B! B! B! B!
Corporate executive accountability B! B!
Addresses conflicts of interest for security analysts B! B! B! B! B! B!
Internal control reporting and auditor opinion about controls
B! B! B! B! B! B! B!
Question 1–11 B!
New accounting standards, or changes in standards, can have significant differen
B! B! B! B! B! B! B! B! B! B!
tial effects on companies, investors and creditors, and other interest groups by causin
B! B! B! B! B! B! B! B! B! B! B! B!
g redistribution of wealth. There also is the possibility that standards could harm the
B! B! B! B ! B! B! B! B! B! B! B! B! B! B!
economy as a whole by causing companies to change their behavior.
B! B! B! B! B! B! B! B! B! B!
Question 1–12 B!
The FASB undertakes a series of elaborate information gathering steps before is
B! B! B! B! B! B! B! B! B! B! B!
suing an accounting standard to determine consensus as to the preferred method of ac
B! B! B! B! B! B! B! B! B! B! B! B! B!
counting, as well as to anticipate adverse economic consequences.
B! B! B! B! B! B! B! B!
Question 1–13 B!
The purpose of the conceptual framework is to guide the Board in developing ac
B! B! B! B! B! B! B! B! B! B! B! B! B!
counting standards by providing an underlying foundation and basic reasoning on wh
B! B! B! B! B! B! B! B! B! B! B!
ich to consider merits of alternatives. The framework does not prescribe GAAP.
B! B! B! B! B! B ! B! B! B! B! B!
B! B! B! B! B! B! B!B!
David Spiceland, Mark Nelson, Wayne Thomas, Jennifer
B! B! B! B! B! B! B!
,Chapter 1 Environment and Theoretical Structure of B! B! B! B! B! B!
Financial Accounting B!
Question 1–1 B!
Financial accounting is concerned with providing relevant financial information
B! B! B! B! B! B! B! B! B!
about various kinds of organizations to different types of external users. The primary
B! B! B! B! B! B! B! B! B! B! B! B! B!
focus of financial accounting is on the financial information provided by profit-
B! B! B! B! B! B! B! B! B! B! B!
oriented companies to their present and potential investors and creditors.
B! B! B! B! B! B! B! B! B! B!
Question 1–2 B!
Resources are efficiently allocated if they are given to enterprises that will use t
B! B! B! B! B! B! B! B! B! B! B! B! B!
hem to provide goods and services desired by society and not to enterprises that will
B! B! B! B! B! B! B! B! B! B! B! B! B! B! B!
waste them. The capital markets are the mechanism that fosters this efficient allocati
B! B! B! B! B! B! B! B! B! B! B ! B!
on of resources.
B! B!
Question 1–3 B!
Two extremely important variables that must be considered in any investment d
B! B! B! B! B! B! B! B! B! B! B!
ecision are the expected rate of return and the uncertainty or risk of that expected ret
B! B! B! B! B! B! B! B! B! B! B! B! B! B! B!
urn.
Question 1–4 B!
In the long run, a company will be able to provide investors and creditors with a
B! B! B! B! B! B! B! B! B! B! B! B! B! B! B!
rate of return only if it can generate a profit. That is, it must be able to use the resou
B! B! B! B! B! B! B! B! B! B! B! B! B! B! B! B! B! B! B! B!
rces provided to it to generate cash receipts from selling a product or service that exc
B! B! B! B! B! B! B! B! B! B! B! B! B! B! B!
eed the cash disbursements necessary to provide that product or service.
B! B! B! B! B! B! B! B! B! B!
Question 1–5 B!
The primary objective of financial accounting is to provide investors and credit
B! B! B! B! B! B! B! B! B! B ! B!
ors with information that will help them make investment and credit decisions.
B! B! B! B! B! B! B! B! B! B! B!
Question 1–6 B!
Net operating cash flows are the difference between cash receipts and cash disbu
B! B! B! B! B! B! B! B! B! B! B! B!
rsements during a period of time from transactions related to providing goods and se
B! B! B! B! B! B! B! B ! B! B! B! B! B!
rvices to customers. Net operating cash flows may not be a good indicator of future c
B! B! B! B! B! B! B! B! B! B! B! B! B! B! B!
ash flows because, by ignoring uncompleted transactions, they may not match the acc
B! B! B! B! B! B! B! B! B! B! B! B!
omplishments and sacrifices of the period. B! B! B! B! B!
,Question 1–7 B!
GAAP (generally accepted accounting principles) are a dynamic set of both bro
B! B! B! B! B! B! B! B! B ! B! B!
ad and specific guidelines that a company should follow in measuring and reporting
B! B! B! B! B! B! B! B! B! B! B ! B! B!
the information in their financial statements and related notes. It is important that al
B! B! B! B! B! B! B! B! B ! B ! B! B! B!
l companies follow GAAP so that investors can compare financial information across
B! B! B! B! B! B! B! B! B! B! B!
companies to make their resource allocation decisions.
B! B! B! B! B! B! B!
Question 1–8 B!
In 1934, Congress created the SEC and gave it the job of setting accounting and
B! B! B! B! B! B! B! B! B! B! B! B! B! B! B!
reporting standards for companies whose securities are publicly traded. The SEC has
B! B! B! B! B! B! B! B! B! B! B! B!
retained the power, but has relied on private sector bodies to create the standards. Th
B! B! B! B! B! B! B! B! B! B! B! B! B! B!
e current private sector body responsible for setting accounting standards is the FAS
B! B! B! B! B! B! B! B! B! B! B! B!
B.
Question 1–9 B!
Auditors are independent, professional accountants who examine financial state
B! B! B! B! B! B! B! B!
ments to express an opinion. The opinion reflects the auditors‘ assessment of the stat
B! B! B! B! B! B! B! B! B! B! B! B! B!
ements' fairness, which is determined by the extent to which they are prepared in co
B! B! B! B! B! B! B! B! B! B! B! B! B! B!
mpliance with GAAP. The auditor adds credibility to the financial statements, which
B! B! B ! B! B! B! B! B! B! B! B!
increases the confidence of capital market participants relying on that information.
B! B! B! B! B! B! B! B! B! B! B!
, Question 1–10 B!
Key provisions included in the text are:
B! B! B! B! B! B!
Creation of the Public Company Accounting Oversight Board
B! B! B! B! B! B! B!
Regulate types of non-audit audit services B! B! B! B! B!
Require lead audit partner rotation every 5 year
B! B! B! B! B! B! B!
Corporate executive accountability B! B!
Addresses conflicts of interest for security analysts B! B! B! B! B! B!
Internal control reporting and auditor opinion about controls
B! B! B! B! B! B! B!
Question 1–11 B!
New accounting standards, or changes in standards, can have significant differen
B! B! B! B! B! B! B! B! B! B!
tial effects on companies, investors and creditors, and other interest groups by causin
B! B! B! B! B! B! B! B! B! B! B! B!
g redistribution of wealth. There also is the possibility that standards could harm the
B! B! B! B ! B! B! B! B! B! B! B! B! B! B!
economy as a whole by causing companies to change their behavior.
B! B! B! B! B! B! B! B! B! B!
Question 1–12 B!
The FASB undertakes a series of elaborate information gathering steps before is
B! B! B! B! B! B! B! B! B! B! B!
suing an accounting standard to determine consensus as to the preferred method of ac
B! B! B! B! B! B! B! B! B! B! B! B! B!
counting, as well as to anticipate adverse economic consequences.
B! B! B! B! B! B! B! B!
Question 1–13 B!
The purpose of the conceptual framework is to guide the Board in developing ac
B! B! B! B! B! B! B! B! B! B! B! B! B!
counting standards by providing an underlying foundation and basic reasoning on wh
B! B! B! B! B! B! B! B! B! B! B!
ich to consider merits of alternatives. The framework does not prescribe GAAP.
B! B! B! B! B! B ! B! B! B! B! B!
