Solution Manual For Financial Statement Analysis,
13th Edition
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
, Chapterm1m Introductio
nmtomFinancialmReporting
QUESTIONS
1- 1. a.
ThemAICPAmismanmorganizationmofmCPAsmthatmpriormtom1973macceptedmth
emprimarymresponsibilitymformthemdevelopmentmofmgenerallymacceptedmacco
untingmprinciples.mTheirmrolemwasmsubstantiallymreducedminm1973mwhenmth
emFinancialmAccountingmStandardsmBoardmwasmestablished.m Theirmrolemw
asmfurthermreducedmwithmthemestablishmentmofmthemPublicmCompanymAcco
untingmOversightmBoardmwasmestablishedminm2002.
b. ThemFinancialmAccountingmStandardsmBoardmreplacedmthemAccountin
gmPrinciplesmBoardmasmthemprimarymrule-
makingmbodymformaccountingmstandards.mItmismanmindependentmorgani
zationmandmincludesmmembersmothermthanmpublicmaccountants.
c. ThemSECmhasmthemauthoritymtomdeterminemgenerallymacceptedmaccountin
gmprinciplesmandmtomregulatemthemaccountingmprofession.mThemSECmhasm
electedmtomleavemmuchmofmthemdeterminationmofmgenerallymacceptedmacc
ountingmprinciplesmtomthemprivatemsector.m ThemFinancialmAccountingmSta
ndardsmBoardmhasmplayedmthemmajormroleminmestablishingmaccountingmst
andardsmsincem1973.m Regulationmofmthemaccountingmprofessionmwasmsu
bstantiallymturnedmovermtomthemPublicmCompanymAccountingmOversightm
Boardminm2002.
1-m2.
Consistencymismobtainedmthroughmthemapplicationmofmthemsamemaccountin
gmprinciplemfrommperiodmtomperiod.m Amchangeminmprinciplemrequiresmstatem
entmdisclosure.
1-m3.
Themconceptmofmhistoricalmcostmdeterminesmthembalancemsheetmvaluationmofmland
.mThemrealizationmconceptmrequiresmthatmamtransactionmneedsmtomoccurmformthempr
ofitmtombemrecognized.
1-m4. a.m Entity e.m Historicalmcost
b. Realization f.m Historicalmcost
c. Materiality g.m Disclosure
d. Conservatism
,1-m5. Entitymconcept
, 1-m6.
Generallymacceptedmaccountingmprinciplesmdomnotmapplymwhenmamfirmmdoesmn
otmappearmtombemamgoingmconcern.m Ifmthemdecisionmismmademthatmthismismnotmam
goingmconcern,mthenmthemusemofmGAAPmwouldmnotmbemappropriate.
1-m7.
Withmthemtimemperiodmassumption,minaccuraciesmofmaccountingmformthementity,ms
hortmofmitsmcompletemlifemspan,maremaccepted.mThemassumptionmismmademthatmth
ementitymcanmbemaccountedmformreasonablymaccuratelymformamparticularmperiodmo
fmtime.m Inmothermwords,mthemdecisionmismmademtomacceptmsomeminaccuracymbec
ausemofmincompleteminformationmaboutmthemfutureminmexchangemformmoremtimely
mreporting.m Themstatementsmaremconsideredmtombemmeaningfulmbecausemmateri
alminaccuraciesmaremnotmacceptable.
1- 8.m m Itmismtruemthatmthemonlymaccuratemwaymtomaccountmformthemsuccessmormfailuremofma
nmentitymismtomaccumulatemallmtransactionsmfrommthemopeningmofmbusinessmuntilm
thembusinessmeventuallymliquidates.m Butmitmismnotmnecessarymthatmthemstatemen
tsmbemcompletelymaccurateminmordermformthemmtombemmeaningful.
1- 9. a. Amyearmthatmendsmwhenmoperationsmarematmamlowmebbmformthemyear.
b. ThemaccountingmtimemperiodmismendedmonmDecemberm31.
c. Amtwelve-
monthmaccountingmperiodmthatmendsmatmthemendmofmammonthmothermthanmD
ecemberm31.
1-10. Money.
1-
11.m m Whenmmoneymdoesmnotmholdmamstablemvalue,mthemfinancialmstatementsmc
anmlosemmuchmofmtheirmsignificance.m Tomthemextentmthatmmoneymdoesmnotmrem
ainmstable,mitmlosesmusefulnessmasmthemstandardmformmeasuringmfinancialmtrans
actions.
1-12.
No.m Theremismamproblemmwithmdeterminingmthemindexminmordermtomadjustmthemst
atements.m Themitemsmthatmaremincludedminmthemindexmmustmbemrepresentative.
mInmaddition,mthempricesmofmitemsmchangembecausemofmvariousmfactors,msuchmas
mquality,mtechnology,mandminflation.
Yes.mAmreasonablemadjustmentmtomthemstatementsmcanmbemmademforminflation.
1-13. False.m Anmarbitrarymwrite-
offmofminventorymcannotmbemjustifiedmundermthemconservatismmconcept.m Themco
nservatismmconceptmcanmonlymbemappliedmwheremtheremaremalternativemmeasur
ementsmandmeachmofmthesemalternativemmeasurementsmhasmreasonablemsuppo
13th Edition
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
, Chapterm1m Introductio
nmtomFinancialmReporting
QUESTIONS
1- 1. a.
ThemAICPAmismanmorganizationmofmCPAsmthatmpriormtom1973macceptedmth
emprimarymresponsibilitymformthemdevelopmentmofmgenerallymacceptedmacco
untingmprinciples.mTheirmrolemwasmsubstantiallymreducedminm1973mwhenmth
emFinancialmAccountingmStandardsmBoardmwasmestablished.m Theirmrolemw
asmfurthermreducedmwithmthemestablishmentmofmthemPublicmCompanymAcco
untingmOversightmBoardmwasmestablishedminm2002.
b. ThemFinancialmAccountingmStandardsmBoardmreplacedmthemAccountin
gmPrinciplesmBoardmasmthemprimarymrule-
makingmbodymformaccountingmstandards.mItmismanmindependentmorgani
zationmandmincludesmmembersmothermthanmpublicmaccountants.
c. ThemSECmhasmthemauthoritymtomdeterminemgenerallymacceptedmaccountin
gmprinciplesmandmtomregulatemthemaccountingmprofession.mThemSECmhasm
electedmtomleavemmuchmofmthemdeterminationmofmgenerallymacceptedmacc
ountingmprinciplesmtomthemprivatemsector.m ThemFinancialmAccountingmSta
ndardsmBoardmhasmplayedmthemmajormroleminmestablishingmaccountingmst
andardsmsincem1973.m Regulationmofmthemaccountingmprofessionmwasmsu
bstantiallymturnedmovermtomthemPublicmCompanymAccountingmOversightm
Boardminm2002.
1-m2.
Consistencymismobtainedmthroughmthemapplicationmofmthemsamemaccountin
gmprinciplemfrommperiodmtomperiod.m Amchangeminmprinciplemrequiresmstatem
entmdisclosure.
1-m3.
Themconceptmofmhistoricalmcostmdeterminesmthembalancemsheetmvaluationmofmland
.mThemrealizationmconceptmrequiresmthatmamtransactionmneedsmtomoccurmformthempr
ofitmtombemrecognized.
1-m4. a.m Entity e.m Historicalmcost
b. Realization f.m Historicalmcost
c. Materiality g.m Disclosure
d. Conservatism
,1-m5. Entitymconcept
, 1-m6.
Generallymacceptedmaccountingmprinciplesmdomnotmapplymwhenmamfirmmdoesmn
otmappearmtombemamgoingmconcern.m Ifmthemdecisionmismmademthatmthismismnotmam
goingmconcern,mthenmthemusemofmGAAPmwouldmnotmbemappropriate.
1-m7.
Withmthemtimemperiodmassumption,minaccuraciesmofmaccountingmformthementity,ms
hortmofmitsmcompletemlifemspan,maremaccepted.mThemassumptionmismmademthatmth
ementitymcanmbemaccountedmformreasonablymaccuratelymformamparticularmperiodmo
fmtime.m Inmothermwords,mthemdecisionmismmademtomacceptmsomeminaccuracymbec
ausemofmincompleteminformationmaboutmthemfutureminmexchangemformmoremtimely
mreporting.m Themstatementsmaremconsideredmtombemmeaningfulmbecausemmateri
alminaccuraciesmaremnotmacceptable.
1- 8.m m Itmismtruemthatmthemonlymaccuratemwaymtomaccountmformthemsuccessmormfailuremofma
nmentitymismtomaccumulatemallmtransactionsmfrommthemopeningmofmbusinessmuntilm
thembusinessmeventuallymliquidates.m Butmitmismnotmnecessarymthatmthemstatemen
tsmbemcompletelymaccurateminmordermformthemmtombemmeaningful.
1- 9. a. Amyearmthatmendsmwhenmoperationsmarematmamlowmebbmformthemyear.
b. ThemaccountingmtimemperiodmismendedmonmDecemberm31.
c. Amtwelve-
monthmaccountingmperiodmthatmendsmatmthemendmofmammonthmothermthanmD
ecemberm31.
1-10. Money.
1-
11.m m Whenmmoneymdoesmnotmholdmamstablemvalue,mthemfinancialmstatementsmc
anmlosemmuchmofmtheirmsignificance.m Tomthemextentmthatmmoneymdoesmnotmrem
ainmstable,mitmlosesmusefulnessmasmthemstandardmformmeasuringmfinancialmtrans
actions.
1-12.
No.m Theremismamproblemmwithmdeterminingmthemindexminmordermtomadjustmthemst
atements.m Themitemsmthatmaremincludedminmthemindexmmustmbemrepresentative.
mInmaddition,mthempricesmofmitemsmchangembecausemofmvariousmfactors,msuchmas
mquality,mtechnology,mandminflation.
Yes.mAmreasonablemadjustmentmtomthemstatementsmcanmbemmademforminflation.
1-13. False.m Anmarbitrarymwrite-
offmofminventorymcannotmbemjustifiedmundermthemconservatismmconcept.m Themco
nservatismmconceptmcanmonlymbemappliedmwheremtheremaremalternativemmeasur
ementsmandmeachmofmthesemalternativemmeasurementsmhasmreasonablemsuppo
