Solution Manual For Intermediate Accounting 3rd Edition by Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Solution manual for intermediate accounting 3rd
edition elizabeth a gordon jana s raedy alexander
j sannella_compressed


CHAPTER 1 g o




The Financial Reporting Environment Solutio go go go go




ns
Questions

Q1-
1 Financial information is a much broader concept than simply the financial statements and footnotest
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othe financialstatements. Financialinformation includes items such as the President‘s letterto the own
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ers, management‘s discussion and analysis, the auditors‘ report, the management report and press relea
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ses. Of course, the basic financial statements and footnotes are included in the term financial informati
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on. The basic financial statements are: the balance sheet (also referred to as the statement of financial p
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osition), the statement of comprehensive income (also referred to as the statement of net income and th
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e statement of comprehensive income), the statement of cash flows, and the statement of shareholders‘
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equity. Financial information is not synonymous with the term financial statements because the financ
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ial statements are a subset of the different types of financial information provided.
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Q1-
2 The purpose ofgenerating financialstatements is to provide useful informationto usersto evaluate ec
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onomic entities and make efficient resource allocation decisions based on the risks and returns of a part
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icular investment. The Financial Accounting Standards Board (FASB) identifies investors, lenders a
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nd other creditors as the primary users of the financial statements. The financial statements are the cul
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mination of the financial reporting process. go go go go go




Q1-
3 Capitalis a scarce resource. Investors and creditors have to make decisions as to how much capitalto in
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vest in anygiven entity; therefore, they demand relevant and faithfully representative information abou
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t the economic performance and financial position of a company. This information is provided in the fi
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nancial statements. go




Q1-
4 External auditors ensure that the management of a company has prepared financial statements in acc
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ordance withGenerally Accepted Accounting Principles and fairlypresent the financialposition and ec
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onomic performance ofa company. In addition, external auditors must be an independent party and can
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not be employees of the company they are auditing. External auditors provide a significant amount of c
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,redibility to the financial statements.
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Q1-
5 Data analytics is the process of analyzing large data sets in order to draw useful conclusions. It involv
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es converting raw datainto usefulknowledge. In financialreporting, data analytics can be used to impro
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ve the quality of estimates and valuations.
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Q1-
6 Standard setters createaccounting concepts, rules, and guidelines to ensure that financial statements a
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ccurately present the economic performance and financial position of a firm. The standards encourage
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transparent and truthful reporting. go go go

,
, 1-2 go o
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Q1-
7 U.S. companies listed on U.S. stock exchanges do not have the option to report under IFRS. However
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, foreign companies that trade in the U.S. exchanges canreport under IFRS. The SEC permits the use ofI
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FRS-
based financial statements by international companies with shares trading on U.S. stock exchanges.
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Q1-
8 The FASB seeks and welcomes comments from all parties in the financial reporting process includin
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g managers, investors, accountants, preparers, creditors, lenders, financial statement users, governme
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ntalagencies, financial analysts, industrygroups, and auditors. FASB also receives feedback from pub
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lic roundtable discussions, public meetings, the FASAC, the Private Company Council, and EITF.
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Q1-
9 Yes, the promulgation of financial accounting standards is a political process. There are several grou
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ps that influence the standard setting process. The standard setting process is a political process that is a
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ffected by the impact of several lobbying groups. The government, throughthe SEC, influences accoun
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ting standards. The SEC has the authorityto issue accounting standards but has assigned this responsibi
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lity to the private sector. Nonetheless, the SEC can exert pressureon the FASB to issue accounting stan
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dards and veto the standards promulgated by the FASB. Auditing firms, the corporate sector, creditors,
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financial analysts, the financial community, accounting organizations, industrygroups, and investors go go go go go go go o
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can influence the FASB by written comments about Exposure Drafts and participation in public meeti
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ngs and public roundtables regarding a proposed financial reporting standard.
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Q1-10 A principles-based standard is consistent with a theoretical framework. In contrast, a rules-
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based standard does not necessarilyrelyona consistent theoretical framework. Rather, it contains m
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ore specific and prescriptive rules.
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Q1-
11 Recently, the FASB has taken an asset/liability approach in setting standards. With this approach, a
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transaction is recorded based on whether an asset or liability is created. Another trend has been the mov go go go go go go go go go go go go go go go go go




ement toward the use of fair value measurements as an alternative to historical cost. FASB has also foc
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used onthe promulgationofprinciples-based standards instead of rules-based standards.
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Brief Exercises Soluti go go




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General-
purpose financial statements provide general financial information about an entity that will be useful t
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o many types of users. General-
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purpose financial statements provide information to a wide spectrumofuser groups: investors, creditor
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s, financial analysts, customers, employees, competitors, suppliers, unions, and government agencies.
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Most financial information in general purpose financialstatements is provided to satisfyusers with lim
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ited abilityor authoritytoobtain additional information, which includes investors and creditors. The Fi
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nancial Accounting Standards Board (FASB) identifies investors, lenders, and other creditors as the pr
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imaryusers of the financial statements. go go go go go




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