Solution Manual For Intermediate Accounting, 11th Edition by David Spiceland, Mark Nelson, Verified Chapters 1 - 21 & Appendix A, Complete Newest Version

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,Chapter 1 Environment and Theoretical Structure of t1 t1 t1 t1 t1 t1




Financial Accounting t1




Question 1–1 t1



Financial accounting is concerned with providing relevant financial information a
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bout various kinds of organizations to different types of external users. The primary foc
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us 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 t1



Resources are efficiently allocated if they are given to enterprises that will use the
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m to provide goods and services desired by society and not to enterprises that will wast
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e them. The capital markets are the mechanism that fosters this efficient allocation of r
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esources.

Question 1–3 t1



Two extremely important variables that must be considered in any investment dec
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ision are the expected rate of return and the uncertainty or risk of that expected return.
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Question 1–4 t1



In the long run, a company will be able to provide investors and creditors with a ra
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te of return only if it can generate a profit. That is, it must be able to use the resources p
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rovided to it to generate cash receipts from selling a product or service that exceed the c
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ash disbursements necessary to provide that product or service.
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Question 1–5 t1



The primary objective of financial accounting is to provide investors and creditor
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s with information that will help them make investment and credit decisions.
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Question 1–6 t1



Net operating cash flows are the difference between cash receipts and cash disburs
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ements during a period of time from transactions related to providing goods and servic
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es to customers. Net operating cash flows may not be a good indicator of future cash flo
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ws because, by ignoring uncompleted transactions, they may not match the accomplish
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ments and sacrifices of the period.
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, Question 1–7 t1



GAAP (generally accepted accounting principles) are a dynamic set of both broad
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and specific guidelines that a company should follow in measuring and reporting the i
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nformation in their financial statements and related notes. It is important that all comp
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anies follow GAAP so that investors can compare financial information across compan
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ies to make their resource allocation decisions.
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Question 1–8 t1



In 1934, Congress created the SEC and gave it the job of setting accounting and re
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porting standards for companies whose securities are publicly traded. The SEC has reta
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ined the power, but has relied on private sector bodies to create the standards. The curre
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nt private sector body responsible for setting accounting standards is the FASB.
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Question 1–9 t1



Auditors are independent, professional accountants who examine financial statem
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ents to express an opinion. The opinion reflects the auditors‗ assessment of the stateme
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nts' fairness, which is determined by the extent to which they are prepared in complianc
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e with GAAP. The auditor adds credibility to the financial statements, which increases
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the confidence of capital market participants relying on that information.
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