SolutionmManualmFormIntermediatemAccounting,m11thmEditio
nmbymDavidmSpiceland,mMarkmNelson,mWaynemThomas,mJenni
fer
,Chapterm1mEnvironmentmandmTheoreticalmStructure
m FinancialmAccounting
Questionm1–1
Financialmaccountingmismconcernedmwithmprovidingmrelevantmfinancialminfor
mationmaboutmvariousmkindsmofmorganizationsmtomdifferentmtypesmofmexternalmus
ers.mThemprimarymfocusmofmfinancialmaccountingmismonmthemfinancialminformatio
nmprovidedmbymprofit-
morientedmcompaniesmtomtheirmpresentmandmpotentialminvestorsmandmcreditors.
Questionm1–2
Resourcesmaremefficientlymallocatedmifmtheymaremgivenmtomenterprisesmthatm
willmusemthemmtomprovidemgoodsmandmservicesmdesiredmbymsocietymandmnotmtom
enterprisesmthatmwillmwastemthem.mThemcapitalmmarketsmaremthemmechanismmthat
mfostersmthismefficientmallocationmofmresources.
Questionm1–3
Twomextremelymimportantmvariablesmthatmmustmbemconsideredminmanyminves
tmentmdecisionmaremthemexpectedmratemofmreturnmandmthemuncertaintymormriskmo
fmthatmexpectedmreturn.
Questionm1–4
Inmthemlongmrun,mamcompanymwillmbemablemtomprovideminvestorsmandmcredi
torsmwithmamratemofmreturnmonlymifmitmcanmgeneratemamprofit.mThatmis,mitmmustm
bemablemtomusemthemresourcesmprovidedmtomitmtomgeneratemcashmreceiptsmfromms
ellingmamproductmormservicemthatmexceedmthemcashmdisbursementsmnecessarymtom
providemthatmproductmormservice.
Questionm1–5
Themprimarymobjectivemofmfinancialmaccountingmismtomprovideminvestorsman
dmcreditorsmwithminformationmthatmwillmhelpmthemmmakeminvestmentmandmcredit
mdecisions.
Questionm1–6
Netmoperatingmcashmflowsmaremthemdifferencembetweenmcashmreceiptsmandmc
ashmdisbursementsmduringmamperiodmofmtimemfrommtransactionsm relatedmtomprovi
dingmgoodsmandmservicesmtomcustomers.mNetmoperatingmcashmflowsmmaymnotmbe
mamgoodmindicatormofmfuturemcashmflowsmbecause,mbymignoringmuncompletedmtra
nsactions,mtheymmaymnotmmatchmthemaccomplishmentsmandmsacrificesmofmthemper
iod.
,Questionm1–7
GAAPm(generallymacceptedmaccountingmprinciples)maremamdynamicmsetm ofm
bothmbroadmandmspecificmguidelinesmthatmamcompanymshouldmfollowminmmeasuri
ngmandmreportingmtheminformationminmtheirmfinancialmstatementsmandmrelatedmnot
es.mItmismimportantmthatmallmcompaniesmfollowmGAAPmsomthatminvestorsmcanmco
mparemfinancialminformationmacrossmcompaniesmtommakemtheirmresourcemallocati
onmdecisions.
Questionm1–8
Inm1934,mCongressmcreatedmthemSECmandmgavemitmthemjobmofmsettingmacco
untingmandmreportingmstandardsmformcompaniesmwhosemsecuritiesmarempubliclymtr
aded.mThemSECmhasmretainedmthempower,mbutmhasmreliedmonmprivatemsectormbodi
esmtomcreatemthemstandards.mThemcurrentmprivatemsectormbodymresponsiblemformse
ttingmaccountingmstandardsmismthemFASB.
Questionm1–9
Auditorsmaremindependent,mprofessionalmaccountantsmwhomexaminemfinancial
mstatementsmtomexpressmanmopinion.mThemopinionmreflectsmthemauditors‘massessm
entmofmthemstatements'mfairness,mwhichmismdeterminedmbymthemextentmtomwhichm
theymarempreparedminmcompliancemwithmGAAP.mThemauditormaddsmcredibilitymto
mthemfinancialmstatements,mwhichmincreasesmthemconfidencemofmcapitalmmarketmp
articipantsmrelyingmonmthatminformation.
, Questionm1–10
Keymprovisionsmincludedminmthemtextmare:
CreationmofmthemPublicmCompanymAccountingmOversightmBoard
Regulatemtypesmofmnon-auditmauditmservices
Requiremleadmauditmpartnermrotationmeverym5myear
Corporatem executivem accountability
Addressesmconflictsmofminterestmformsecuritymanalysts
Internalmcontrolmreportingmandmauditormopinionmaboutmcontrols
Questionm1–11
Newmaccountingmstandards,mormchangesminmstandards,mcanmhavemsignificant
mdifferentialmeffectsmonmcompanies,minvestorsmandmcreditors,mandmotherminterestm
groupsmbymcausingmredistributionmofmwealth.m Theremalsomismthempossibilitymthat
mstandardsmcouldmharmmthemeconomymasmamwholembymcausingmcompaniesmtomch
angemtheirmbehavior.
Questionm1–12
ThemFASBmundertakesmamseriesmofmelaborateminformationmgatheringmstepsm
beforemissuingmanmaccountingmstandardmtomdeterminemconsensusmasmtomthemprefe
rredmmethodmofmaccounting,masmwellmasmtomanticipatemadversemeconomicmconse
quences.
Questionm1–13
ThempurposemofmthemconceptualmframeworkmismtomguidemthemBoardminmdev
elopingmaccountingmstandardsmbymprovidingmanmunderlyingmfoundationmandmbasi
cmreasoningmonmwhichmtomconsidermmeritsmofmalternatives.m Themframeworkmdoe
smnotmprescribemGAAP.
nmbymDavidmSpiceland,mMarkmNelson,mWaynemThomas,mJenni
fer
,Chapterm1mEnvironmentmandmTheoreticalmStructure
m FinancialmAccounting
Questionm1–1
Financialmaccountingmismconcernedmwithmprovidingmrelevantmfinancialminfor
mationmaboutmvariousmkindsmofmorganizationsmtomdifferentmtypesmofmexternalmus
ers.mThemprimarymfocusmofmfinancialmaccountingmismonmthemfinancialminformatio
nmprovidedmbymprofit-
morientedmcompaniesmtomtheirmpresentmandmpotentialminvestorsmandmcreditors.
Questionm1–2
Resourcesmaremefficientlymallocatedmifmtheymaremgivenmtomenterprisesmthatm
willmusemthemmtomprovidemgoodsmandmservicesmdesiredmbymsocietymandmnotmtom
enterprisesmthatmwillmwastemthem.mThemcapitalmmarketsmaremthemmechanismmthat
mfostersmthismefficientmallocationmofmresources.
Questionm1–3
Twomextremelymimportantmvariablesmthatmmustmbemconsideredminmanyminves
tmentmdecisionmaremthemexpectedmratemofmreturnmandmthemuncertaintymormriskmo
fmthatmexpectedmreturn.
Questionm1–4
Inmthemlongmrun,mamcompanymwillmbemablemtomprovideminvestorsmandmcredi
torsmwithmamratemofmreturnmonlymifmitmcanmgeneratemamprofit.mThatmis,mitmmustm
bemablemtomusemthemresourcesmprovidedmtomitmtomgeneratemcashmreceiptsmfromms
ellingmamproductmormservicemthatmexceedmthemcashmdisbursementsmnecessarymtom
providemthatmproductmormservice.
Questionm1–5
Themprimarymobjectivemofmfinancialmaccountingmismtomprovideminvestorsman
dmcreditorsmwithminformationmthatmwillmhelpmthemmmakeminvestmentmandmcredit
mdecisions.
Questionm1–6
Netmoperatingmcashmflowsmaremthemdifferencembetweenmcashmreceiptsmandmc
ashmdisbursementsmduringmamperiodmofmtimemfrommtransactionsm relatedmtomprovi
dingmgoodsmandmservicesmtomcustomers.mNetmoperatingmcashmflowsmmaymnotmbe
mamgoodmindicatormofmfuturemcashmflowsmbecause,mbymignoringmuncompletedmtra
nsactions,mtheymmaymnotmmatchmthemaccomplishmentsmandmsacrificesmofmthemper
iod.
,Questionm1–7
GAAPm(generallymacceptedmaccountingmprinciples)maremamdynamicmsetm ofm
bothmbroadmandmspecificmguidelinesmthatmamcompanymshouldmfollowminmmeasuri
ngmandmreportingmtheminformationminmtheirmfinancialmstatementsmandmrelatedmnot
es.mItmismimportantmthatmallmcompaniesmfollowmGAAPmsomthatminvestorsmcanmco
mparemfinancialminformationmacrossmcompaniesmtommakemtheirmresourcemallocati
onmdecisions.
Questionm1–8
Inm1934,mCongressmcreatedmthemSECmandmgavemitmthemjobmofmsettingmacco
untingmandmreportingmstandardsmformcompaniesmwhosemsecuritiesmarempubliclymtr
aded.mThemSECmhasmretainedmthempower,mbutmhasmreliedmonmprivatemsectormbodi
esmtomcreatemthemstandards.mThemcurrentmprivatemsectormbodymresponsiblemformse
ttingmaccountingmstandardsmismthemFASB.
Questionm1–9
Auditorsmaremindependent,mprofessionalmaccountantsmwhomexaminemfinancial
mstatementsmtomexpressmanmopinion.mThemopinionmreflectsmthemauditors‘massessm
entmofmthemstatements'mfairness,mwhichmismdeterminedmbymthemextentmtomwhichm
theymarempreparedminmcompliancemwithmGAAP.mThemauditormaddsmcredibilitymto
mthemfinancialmstatements,mwhichmincreasesmthemconfidencemofmcapitalmmarketmp
articipantsmrelyingmonmthatminformation.
, Questionm1–10
Keymprovisionsmincludedminmthemtextmare:
CreationmofmthemPublicmCompanymAccountingmOversightmBoard
Regulatemtypesmofmnon-auditmauditmservices
Requiremleadmauditmpartnermrotationmeverym5myear
Corporatem executivem accountability
Addressesmconflictsmofminterestmformsecuritymanalysts
Internalmcontrolmreportingmandmauditormopinionmaboutmcontrols
Questionm1–11
Newmaccountingmstandards,mormchangesminmstandards,mcanmhavemsignificant
mdifferentialmeffectsmonmcompanies,minvestorsmandmcreditors,mandmotherminterestm
groupsmbymcausingmredistributionmofmwealth.m Theremalsomismthempossibilitymthat
mstandardsmcouldmharmmthemeconomymasmamwholembymcausingmcompaniesmtomch
angemtheirmbehavior.
Questionm1–12
ThemFASBmundertakesmamseriesmofmelaborateminformationmgatheringmstepsm
beforemissuingmanmaccountingmstandardmtomdeterminemconsensusmasmtomthemprefe
rredmmethodmofmaccounting,masmwellmasmtomanticipatemadversemeconomicmconse
quences.
Questionm1–13
ThempurposemofmthemconceptualmframeworkmismtomguidemthemBoardminmdev
elopingmaccountingmstandardsmbymprovidingmanmunderlyingmfoundationmandmbasi
cmreasoningmonmwhichmtomconsidermmeritsmofmalternatives.m Themframeworkmdoe
smnotmprescribemGAAP.
