INSTRUCTOR’S SOLUTIONS MANUAL For ALGEBRA AND TRIGONOMETRY 7th EDITION by DANIEL S. MILLER

INSTRUCTOR’SSOLUTIONSMANUAL J J




for



FinancialAccounting J




Theory J




Seventh Edition J




WilliamR. Scott J J




University of Waterloo J J




Contents


Chapter 1
J Introduction .................................................................................................. 1

Chapter 2
J Accounting Under Ideal Conditions ............................................................ 7
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Chapter 3
J The Decision Usefulness Approach to Financial Reporting .......................... 68
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Chapter 4
J Efficient Securities Markets ........................................................................ 129
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Chapter 5
J The Value Relevance of Accounting Information ........................................ 153
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Chapter 6
J The Measurement Approach to Decision Usefulness ................................... 194
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Chapter 7
J Measurement Applications ......................................................................... 237
J

,Chapter 8 J The Efficient Contracting Approach to Decision Usefulness ........................ 285
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Chapter 9 J An Analysis of Conflict ............................................................................. 321
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Chapter 10 Executive Compensation .......................................................................... 371
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Chapter 11 Earnings Management .............................................................................. 425
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Chapter 12 Standard Setting: Economic Issues ............................................................ 487
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Chapter 13 Standard Setting: Political Issues ............................................................... 527
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,CHAPTER 1 J




INTRODUCTION
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1.1 The Objective of This Book
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1.2 Some Historical Perspective
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1.3 The 2007-2008 Market Meltdowns
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1.4 Efficient ContractingJ




1.5 A Note on Ethical Behaviour
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1.6 Rules-Based v. Principles-Based Accounting Standards
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1.7 The Complexity of Information in Financial Accounting and Reporting
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1.8 The Role of Accounting Research
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1.9 The Importance of Information Asymmetry
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1.10 The Fundamental Problem of Financial Accounting Theory
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1.11 Regulation as a Reaction to the Fundamental Problem
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1.12 The Organization of This Book
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1.12.1 Ideal Conditions J




1.12.2 Adverse Selection J




1.12.3 Moral Hazard J




1.12.4 Standard Setting J




1.12.5 The Process of Standard Setting
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1.13 Relevance of Financial Accounting Theory to Accounting Practice
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, LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
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1. The Broad Outline of the Book
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I use Figure 1.1 as a template to describe the broad outline of the book. Since the
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students typically have not had a chance to read Chapter 1 in the first course session,
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J I stick fairly closely to the chapter material.
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The major points I discuss are:
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• Accounting in an ideal setting. Here, present-value-based accounting J J J J J J J




is natural. I go over the ideal conditions needed for such a basis of
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J accounting to be feasible, but do not go into much detail because this J J J J J J J J J J J J




J topic is covered in greater depth in Chapter 2.
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• An introduction to the concept of information asymmetry and resulting
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J problems of adverse selection and moral hazard. These problems are J J J J J J J J J




J basic to the book and I feel it is desirable for the students to have a ―first
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J go‖ at them at this point. I concentrate on the intuition underlying the
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J two problems. For example, adverse selection can be illustrated by
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J asking who would be first in line to purchase life insurance if there was
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J no medical examination, or what quality of used cars are likely to be
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J brought to market. For moral hazard I try to pin them down on how hard
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they would work in this course if there were no exams.
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• The environment in which financial accounting and reporting
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J operates. My main goal at this point is that the students do not take this J J J J J J J J J J J J J J




J environment for granted. I discuss the procedures of standard setting J J J J J J J J J




J briefly and point out that this is really a process of regulation. In the
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J past, there have been well-known cases of deregulation, such as
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airlines, trucking, financial institutions, power generation. However,
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J we are entering what is likely to be a period of increasing regulation, at
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least for financial institutions. Instructors
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