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 c c c c c c
Financial Accounting c
Question 1–1 c
Financial accounting is concerned with providing relevant financial information ab
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out various kinds of organizations to different types of external users. The primary focus
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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 c
Resources are efficiently allocated if they are given to enterprises that will use them
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to provide goods and services desired by society and not to enterprises that will waste the
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m. The capital markets are the mechanism that fosters this efficient allocation of resourc
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es.
Question 1–3 c
Two extremely important variables that must be considered in any investment decis
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ion are the expected rate of return and the uncertainty or risk of that expected return.
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Question 1–4 c
In the long run, a company will be able to provide investors and creditors with a rate
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of return only if it can generate a profit. That is, it must be able to use the resources provid
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ed to it to generate cash receipts from selling a product or service that exceed the cash disb
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ursements necessary to provide that product or service.
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Question 1–5 c
The primary objective of financial accounting is to provide investors and creditors
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with information that will help them make investment and credit decisions.
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Question 1–6 c
Net operating cash flows are the difference between cash receipts and cash disburse
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ments during a period of time from transactions related to providing goods and services t
c c c c c c c c c c c c c c
o customers. Net operating cash flows may not be a good indicator of future cash flows be
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cause, by ignoring uncompleted transactions, they may not match the accomplishments a
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nd sacrifices of the period.
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,Question 1–7 c
GAAP (generally accepted accounting principles) are a dynamic set of both broad a
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nd specific guidelines that a company should follow in measuring and reporting the infor
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mation in their financial statements and related notes. It is important that all companies f
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ollow GAAP so that investors can compare financial information across companies to m
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ake their resource allocation decisions.
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Question 1–8 c
In 1934, Congress created the SEC and gave it the job of setting accounting and repo
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rting standards for companies whose securities are publicly traded. The SEC has retained
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the power, but has relied on private sector bodies to create the standards. The current priv
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ate sector body responsible for setting accounting standards is the FASB.
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Question 1–9 c
Auditors are independent, professional accountants who examine financial stateme
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nts to express an opinion. The opinion reflects the auditors‘ assessment of the statements'
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fairness, which is determined by the extent to which they are prepared in compliance with
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cGAAP. The auditor adds credibility to the financial statements, which increases the conf
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idence of capital market participants relying on that information.
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, Question 1–10 c
Key provisions included in the text are:
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Creation of the Public Company Accounting Oversight Board
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Regulate types of non-audit audit services c c c c c
Require lead audit partner rotation every 5 year
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Corporate executive accountability c c
Addresses conflicts of interest for security analysts c c c c c c
Internal control reporting and auditor opinion about controls
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Question 1–11 c
New accounting standards, or changes in standards, can have significant differential
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effects on companies, investors and creditors, and other interest groups by causing redist
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ribution of wealth. There also is the possibility that standards could harm the economy as
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a whole by causing companies to change their behavior.
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Question 1–12 c
The FASB undertakes a series of elaborate information gathering steps before issuin
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g an accounting standard to determine consensus as to the preferred method of accountin
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g, as well as to anticipate adverse economic consequences.
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Question 1–13 c
The purpose of the conceptual framework is to guide the Board in developing accou
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nting standards by providing an underlying foundation and basic reasoning on which to c
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onsider merits of alternatives. The framework does not prescribe GAAP.
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c c c c c c cc c
David Spiceland, Mark Nelson, Wayne Thomas, Jennifer
c c c c c c
,Chapter 1 Environment and Theoretical Structure of c c c c c c
Financial Accounting c
Question 1–1 c
Financial accounting is concerned with providing relevant financial information ab
c c c c c c c c c
out various kinds of organizations to different types of external users. The primary focus
c c c c c c c c c c c c c c
of financial accounting is on the financial information provided by profit-
c c c c c c c c c c
oriented companies to their present and potential investors and creditors.
c c c c c c c c c c
Question 1–2 c
Resources are efficiently allocated if they are given to enterprises that will use them
c c c c c c c c c c c c c c
to provide goods and services desired by society and not to enterprises that will waste the
c c c c c c c c c c c c c c c
m. The capital markets are the mechanism that fosters this efficient allocation of resourc
c c c c c c c c c c c c c
es.
Question 1–3 c
Two extremely important variables that must be considered in any investment decis
c c c c c c c c c c c
ion are the expected rate of return and the uncertainty or risk of that expected return.
c c c c c c c c c c c c c c c
Question 1–4 c
In the long run, a company will be able to provide investors and creditors with a rate
c c c c c c c c c c c c c c c c c
of return only if it can generate a profit. That is, it must be able to use the resources provid
c c c c c c c c c c c c c c c c c c c
ed to it to generate cash receipts from selling a product or service that exceed the cash disb
c c c c c c c c c c c c c c c c c
ursements necessary to provide that product or service.
c c c c c c c
Question 1–5 c
The primary objective of financial accounting is to provide investors and creditors
c c c c c c c c c c c c
with information that will help them make investment and credit decisions.
c c c c c c c c c c
Question 1–6 c
Net operating cash flows are the difference between cash receipts and cash disburse
c c c c c c c c c c c c
ments during a period of time from transactions related to providing goods and services t
c c c c c c c c c c c c c c
o customers. Net operating cash flows may not be a good indicator of future cash flows be
c c c c c c c c c c c c c c c c
cause, by ignoring uncompleted transactions, they may not match the accomplishments a
c c c c c c c c c c c
nd sacrifices of the period.
c c c c
,Question 1–7 c
GAAP (generally accepted accounting principles) are a dynamic set of both broad a
c c c c c c c c c c c c
nd specific guidelines that a company should follow in measuring and reporting the infor
c c c c c c c c c c c c c
mation in their financial statements and related notes. It is important that all companies f
c c c c c c c c c c c c c c
ollow GAAP so that investors can compare financial information across companies to m
c c c c c c c c c c c c
ake their resource allocation decisions.
c c c c
Question 1–8 c
In 1934, Congress created the SEC and gave it the job of setting accounting and repo
c c c c c c c c c c c c c c c
rting standards for companies whose securities are publicly traded. The SEC has retained
c c c c c c c c c c c c c
the power, but has relied on private sector bodies to create the standards. The current priv
c c c c c c c c c c c c c c c
ate sector body responsible for setting accounting standards is the FASB.
c c c c c c c c c c
Question 1–9 c
Auditors are independent, professional accountants who examine financial stateme
c c c c c c c c
nts to express an opinion. The opinion reflects the auditors‘ assessment of the statements'
c c c c c c c c c c c c c c
fairness, which is determined by the extent to which they are prepared in compliance with
c c c c c c c c c c c c c c
cGAAP. The auditor adds credibility to the financial statements, which increases the conf
c c c c c c c c c c c c
idence of capital market participants relying on that information.
c c c c c c c c
, Question 1–10 c
Key provisions included in the text are:
c c c c c c
Creation of the Public Company Accounting Oversight Board
c c c c c c c
Regulate types of non-audit audit services c c c c c
Require lead audit partner rotation every 5 year
c c c c c c c
Corporate executive accountability c c
Addresses conflicts of interest for security analysts c c c c c c
Internal control reporting and auditor opinion about controls
c c c c c c c
Question 1–11 c
New accounting standards, or changes in standards, can have significant differential
c c c c c c c c c c
effects on companies, investors and creditors, and other interest groups by causing redist
c c c c c c c c c c c c c
ribution of wealth. There also is the possibility that standards could harm the economy as
c c c c c c c c c c c c c c c
a whole by causing companies to change their behavior.
c c c c c c c c
Question 1–12 c
The FASB undertakes a series of elaborate information gathering steps before issuin
c c c c c c c c c c c
g an accounting standard to determine consensus as to the preferred method of accountin
c c c c c c c c c c c c c
g, as well as to anticipate adverse economic consequences.
c c c c c c c c
Question 1–13 c
The purpose of the conceptual framework is to guide the Board in developing accou
c c c c c c c c c c c c c
nting standards by providing an underlying foundation and basic reasoning on which to c
c c c c c c c c c c c c c
onsider merits of alternatives. The framework does not prescribe GAAP.
c c c c c c c c c
