Solution Manual For Financial Statement Analysis,
13th Edition
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
, Chapter nz1
nz Introduction nzto nzFinancial
nzReporting
QUESTIONS
1- 1. a. The nzAICPA nzis nzan nzorganization nzof nzCPAs nzthat nzprior nzto nz1973
nzaccepted nzthe nzprimary nzresponsibility nzfor nzthe nzdevelopment nzof
nzgenerally nzaccepted nzaccounting nzprinciples. nzTheir nzrole nzwas
nzsubstantially nzreduced nzin nz1973 nzwhen nzthe nzFinancial nzAccounting
nzStandards nzBoard nzwas nzestablished. n z Their nzrole nzwas nzfurther
nzreduced nzwith nzthe nzestablishment nzof nzthe nzPublic nzCompany
nzAccounting nzOversight nzBoard nzwas nzestablished nzin nz2002.
b. The nzFinancial nzAccounting nzStandards nzBoard nzreplaced nzthe
nzAccounting nzPrinciples nzBoard nzas nzthe nzprimary nzrule-making
nzbody nzfor nzaccounting nzstandards. nzIt nzis nzan nzindependent
nzorganization nzand nzincludes nzmembers nzother nzthan nzpublic
nzaccountants.
c. The nzSEC nzhas nzthe nzauthority nzto nzdetermine nzgenerally nzaccepted
nzaccounting nzprinciples nzand nzto nzregulate nzthe nzaccounting
nzprofession. nzThe nzSEC nzhas nzelected nzto nzleave nzmuch nzof nzthe
nzdetermination nzof nzgenerally nzaccepted nzaccounting nzprinciples nzto
nzthe nzprivate nzsector. n z The nzFinancial nzAccounting nzStandards nzBoard
nzhas nzplayed nzthe nzmajor nzrole nzin nzestablishing nzaccounting nzstandards
nzsince nz1973. n z Regulation nzof nzthe nzaccounting nzprofession nzwas
nzsubstantially nzturned nzover nzto nzthe nzPublic nzCompany nzAccounting
nzOversight nzBoard nzin nz2002.
1- nz2. Consistency nzis nzobtained nzthrough nzthe nzapplication nzof nzthe nzsame
nzaccounting nzprinciple nzfrom nzperiod nzto nzperiod. n z A nzchange nzin
nzprinciple nzrequires nzstatement nzdisclosure.
1- nz3. The nzconcept nzof nzhistorical nzcost nzdetermines nzthe nzbalance nzsheet nzvaluation
nzof nzland. nzThe nzrealization nzconcept nzrequires nzthat nza nztransaction nzneeds nzto
nzoccur nzfor nzthe nzprofit nzto nzbe nzrecognized.
1- nz4. a. n z Entity e. n z Historical nzcost
b. Realization f. n z Historical nzcost
c. Materiality g. n z Disclosure
d. Conservatism
,1- nz5. Entity nzconcept
, 1- nz6. Generally nzaccepted nzaccounting nzprinciples nzdo nznot nzapply nzwhen nza nzfirm
nzdoes nznot nzappear nzto nzbe nza nzgoing nzconcern. n z If nzthe nzdecision nzis nzmade
nzthat nzthis nzis nznot nza nzgoing nzconcern, nzthen nzthe nzuse nzof nzGAAP nzwould
nznot nzbe nzappropriate.
1- nz7. With nzthe nztime nzperiod nzassumption, nzinaccuracies nzof nzaccounting nzfor nzthe
nzentity, nzshort nzof nzits nzcomplete nzlife nzspan, nzare nzaccepted. nzThe nzassumption
nzis nzmade nzthat nzthe nzentity nzcan nzbe nzaccounted nzfor nzreasonably nzaccurately
nzfor nza nzparticular nzperiod nzof nztime. n z In nzother nzwords, nzthe nzdecision nzis
nzmade nzto nzaccept nzsome nzinaccuracy nzbecause nzof nzincomplete nzinformation
nzabout nzthe nzfuture nzin nzexchange nzfor nzmore nztimely nzreporting. n z The
nzstatements nzare nzconsidered nzto nzbe nzmeaningful nzbecause nzmaterial
nzinaccuracies nzare nznot nzacceptable.
1- 8. n z n z It nzis nztrue nzthat nzthe nzonly nzaccurate nzway nzto nzaccount nzfor nzthe nzsuccess
nzor nzfailure nzof nzan nzentity nzis nzto nzaccumulate nzall nztransactions nzfrom nzthe
nzopening nzof nzbusiness nzuntil nzthe nzbusiness nzeventually nzliquidates. n z But nzit
nzis nznot nznecessary nzthat nzthe nzstatements nzbe nzcompletely nzaccurate nzin
nzorder nzfor nzthem nzto nzbe nzmeaningful.
1- 9. a. A nzyear nzthat nzends nzwhen nzoperations nzare nzat nza nzlow nzebb nzfor nzthe nzyear.
b. The nzaccounting nztime nzperiod nzis nzended nzon nzDecember nz31.
c. A nztwelve-month nzaccounting nzperiod nzthat nzends nzat nzthe nzend nzof nza
nzmonth nzother nzthan nzDecember nz31.
1-10. Money.
1-11. n z n z When nzmoney nzdoes nznot nzhold nza nzstable nzvalue, nzthe nzfinancial
nzstatements nzcan nzlose nzmuch nzof nztheir nzsignificance. n z To nzthe nzextent nzthat
nzmoney nzdoes nznot nzremain nzstable, nzit nzloses nzusefulness nzas nzthe nzstandard
nzfor nzmeasuring nzfinancial nztransactions.
1-12. No. n z There nzis nza nzproblem nzwith nzdetermining nzthe nzindex nzin nzorder nzto
nzadjust nzthe nzstatements. n z The nzitems nzthat nzare nzincluded nzin nzthe nzindex
nzmust nzbe nzrepresentative. nzIn nzaddition, nzthe nzprices nzof nzitems nzchange
nzbecause nzof nzvarious nzfactors, nzsuch nzas nzquality, nztechnology, nzand
nzinflation.
Yes. nzA nzreasonable nzadjustment nzto nzthe nzstatements nzcan nzbe nzmade nzfor nzinflation.
1-13. False. n z An nzarbitrary nzwrite-off nzof nzinventory nzcannot nzbe nzjustified nzunder
nzthe nzconservatism nzconcept. n z The nzconservatism nzconcept nzcan nzonly nzbe
nzapplied nzwhere nzthere nzare nzalternative nzmeasurements nzand nzeach nzof
nzthese nzalternative nzmeasurements nzhas nzreasonable nzsupport.
13th Edition
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
, Chapter nz1
nz Introduction nzto nzFinancial
nzReporting
QUESTIONS
1- 1. a. The nzAICPA nzis nzan nzorganization nzof nzCPAs nzthat nzprior nzto nz1973
nzaccepted nzthe nzprimary nzresponsibility nzfor nzthe nzdevelopment nzof
nzgenerally nzaccepted nzaccounting nzprinciples. nzTheir nzrole nzwas
nzsubstantially nzreduced nzin nz1973 nzwhen nzthe nzFinancial nzAccounting
nzStandards nzBoard nzwas nzestablished. n z Their nzrole nzwas nzfurther
nzreduced nzwith nzthe nzestablishment nzof nzthe nzPublic nzCompany
nzAccounting nzOversight nzBoard nzwas nzestablished nzin nz2002.
b. The nzFinancial nzAccounting nzStandards nzBoard nzreplaced nzthe
nzAccounting nzPrinciples nzBoard nzas nzthe nzprimary nzrule-making
nzbody nzfor nzaccounting nzstandards. nzIt nzis nzan nzindependent
nzorganization nzand nzincludes nzmembers nzother nzthan nzpublic
nzaccountants.
c. The nzSEC nzhas nzthe nzauthority nzto nzdetermine nzgenerally nzaccepted
nzaccounting nzprinciples nzand nzto nzregulate nzthe nzaccounting
nzprofession. nzThe nzSEC nzhas nzelected nzto nzleave nzmuch nzof nzthe
nzdetermination nzof nzgenerally nzaccepted nzaccounting nzprinciples nzto
nzthe nzprivate nzsector. n z The nzFinancial nzAccounting nzStandards nzBoard
nzhas nzplayed nzthe nzmajor nzrole nzin nzestablishing nzaccounting nzstandards
nzsince nz1973. n z Regulation nzof nzthe nzaccounting nzprofession nzwas
nzsubstantially nzturned nzover nzto nzthe nzPublic nzCompany nzAccounting
nzOversight nzBoard nzin nz2002.
1- nz2. Consistency nzis nzobtained nzthrough nzthe nzapplication nzof nzthe nzsame
nzaccounting nzprinciple nzfrom nzperiod nzto nzperiod. n z A nzchange nzin
nzprinciple nzrequires nzstatement nzdisclosure.
1- nz3. The nzconcept nzof nzhistorical nzcost nzdetermines nzthe nzbalance nzsheet nzvaluation
nzof nzland. nzThe nzrealization nzconcept nzrequires nzthat nza nztransaction nzneeds nzto
nzoccur nzfor nzthe nzprofit nzto nzbe nzrecognized.
1- nz4. a. n z Entity e. n z Historical nzcost
b. Realization f. n z Historical nzcost
c. Materiality g. n z Disclosure
d. Conservatism
,1- nz5. Entity nzconcept
, 1- nz6. Generally nzaccepted nzaccounting nzprinciples nzdo nznot nzapply nzwhen nza nzfirm
nzdoes nznot nzappear nzto nzbe nza nzgoing nzconcern. n z If nzthe nzdecision nzis nzmade
nzthat nzthis nzis nznot nza nzgoing nzconcern, nzthen nzthe nzuse nzof nzGAAP nzwould
nznot nzbe nzappropriate.
1- nz7. With nzthe nztime nzperiod nzassumption, nzinaccuracies nzof nzaccounting nzfor nzthe
nzentity, nzshort nzof nzits nzcomplete nzlife nzspan, nzare nzaccepted. nzThe nzassumption
nzis nzmade nzthat nzthe nzentity nzcan nzbe nzaccounted nzfor nzreasonably nzaccurately
nzfor nza nzparticular nzperiod nzof nztime. n z In nzother nzwords, nzthe nzdecision nzis
nzmade nzto nzaccept nzsome nzinaccuracy nzbecause nzof nzincomplete nzinformation
nzabout nzthe nzfuture nzin nzexchange nzfor nzmore nztimely nzreporting. n z The
nzstatements nzare nzconsidered nzto nzbe nzmeaningful nzbecause nzmaterial
nzinaccuracies nzare nznot nzacceptable.
1- 8. n z n z It nzis nztrue nzthat nzthe nzonly nzaccurate nzway nzto nzaccount nzfor nzthe nzsuccess
nzor nzfailure nzof nzan nzentity nzis nzto nzaccumulate nzall nztransactions nzfrom nzthe
nzopening nzof nzbusiness nzuntil nzthe nzbusiness nzeventually nzliquidates. n z But nzit
nzis nznot nznecessary nzthat nzthe nzstatements nzbe nzcompletely nzaccurate nzin
nzorder nzfor nzthem nzto nzbe nzmeaningful.
1- 9. a. A nzyear nzthat nzends nzwhen nzoperations nzare nzat nza nzlow nzebb nzfor nzthe nzyear.
b. The nzaccounting nztime nzperiod nzis nzended nzon nzDecember nz31.
c. A nztwelve-month nzaccounting nzperiod nzthat nzends nzat nzthe nzend nzof nza
nzmonth nzother nzthan nzDecember nz31.
1-10. Money.
1-11. n z n z When nzmoney nzdoes nznot nzhold nza nzstable nzvalue, nzthe nzfinancial
nzstatements nzcan nzlose nzmuch nzof nztheir nzsignificance. n z To nzthe nzextent nzthat
nzmoney nzdoes nznot nzremain nzstable, nzit nzloses nzusefulness nzas nzthe nzstandard
nzfor nzmeasuring nzfinancial nztransactions.
1-12. No. n z There nzis nza nzproblem nzwith nzdetermining nzthe nzindex nzin nzorder nzto
nzadjust nzthe nzstatements. n z The nzitems nzthat nzare nzincluded nzin nzthe nzindex
nzmust nzbe nzrepresentative. nzIn nzaddition, nzthe nzprices nzof nzitems nzchange
nzbecause nzof nzvarious nzfactors, nzsuch nzas nzquality, nztechnology, nzand
nzinflation.
Yes. nzA nzreasonable nzadjustment nzto nzthe nzstatements nzcan nzbe nzmade nzfor nzinflation.
1-13. False. n z An nzarbitrary nzwrite-off nzof nzinventory nzcannot nzbe nzjustified nzunder
nzthe nzconservatism nzconcept. n z The nzconservatism nzconcept nzcan nzonly nzbe
nzapplied nzwhere nzthere nzare nzalternative nzmeasurements nzand nzeach nzof
nzthese nzalternative nzmeasurements nzhas nzreasonable nzsupport.
