Solution Manual For Financial Statement Analysis,
p p p p p
13th Edition
p
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
p p p p p p p p p p p
, Chapter p1
pIntroduction pto pFinancial
pReporting
QUESTIONS
1- 1. a. The pAICPA pis pan porganization pof pCPAs pthat pprior pto p1973 paccepted pthe
pprimary presponsibility pfor pthe pdevelopment pof pgenerally paccepted
paccounting pprinciples. pTheir prole pwas psubstantially preduced pin p1973
pwhen pthe pFinancial pAccounting pStandards pBoard pwas pestablished.
p Their prole pwas pfurther preduced pwith pthe pestablishment pof pthe pPublic
pCompany pAccounting pOversight pBoard pwas pestablished pin p2002.
b. The pFinancial pAccounting pStandards pBoard preplaced pthe
pAccounting pPrinciples pBoard pas pthe pprimary prule-making pbody pfor
paccounting pstandards. pIt pis pan pindependent porganization pand
pincludes pmembers pother pthan ppublic paccountants.
c. The pSEC phas pthe pauthority pto pdetermine pgenerally paccepted
paccounting pprinciples pand pto pregulate pthe paccounting pprofession. pThe
pSEC phas pelected pto pleave pmuch pof pthe pdetermination pof pgenerally
paccepted paccounting pprinciples pto pthe pprivate psector. p The pFinancial
pAccounting pStandards pBoard phas pplayed pthe pmajor prole pin
pestablishing paccounting pstandards psince p1973. p Regulation pof pthe
paccounting pprofession pwas psubstantially pturned pover pto pthe pPublic
pCompany pAccounting pOversight pBoard pin p2002.
1- p2. Consistency pis pobtained pthrough pthe papplication pof pthe psame
paccounting pprinciple pfrom pperiod pto pperiod. p A pchange pin pprinciple
prequires pstatement pdisclosure.
1- p3. The pconcept pof phistorical pcost pdetermines pthe pbalance psheet pvaluation pof
pland. pThe prealization pconcept prequires pthat pa ptransaction pneeds pto poccur pfor
pthe pprofit pto pbe precognized.
1- p4. a. p Entity e. p Historical pcost
b. Realization f. p Historical pcost
c. Materiality g. p Disclosure
d. Conservatism
1- p5. Entity pconcept
,1- p6. Generally paccepted paccounting pprinciples pdo pnot papply pwhen pa pfirm pdoes
pnot pappear pto pbe pa pgoing pconcern. p If pthe pdecision pis pmade pthat pthis pis pnot
pa pgoing pconcern, pthen pthe puse pof pGAAP pwould pnot pbe pappropriate.
1- p7. With pthe ptime pperiod passumption, pinaccuracies pof paccounting pfor pthe pentity,
pshort pof pits pcomplete plife pspan, pare paccepted. pThe passumption pis pmade pthat
pthe pentity pcan pbe paccounted pfor preasonably paccurately pfor pa pparticular pperiod
pof ptime. p In pother pwords, pthe pdecision pis pmade pto paccept psome pinaccuracy
pbecause pof pincomplete pinformation pabout pthe pfuture pin pexchange pfor pmore
ptimely preporting. p The pstatements pare pconsidered pto pbe pmeaningful pbecause
pmaterial pinaccuracies pare pnot pacceptable.
1- 8. p p It pis ptrue pthat pthe ponly paccurate pway pto paccount pfor pthe psuccess por pfailure pof
pan pentity pis pto paccumulate pall ptransactions pfrom pthe popening pof pbusiness
puntil pthe pbusiness peventually pliquidates. p But pit pis pnot pnecessary pthat pthe
pstatements pbe pcompletely paccurate pin porder pfor pthem pto pbe pmeaningful.
1- 9. a. A pyear pthat pends pwhen poperations pare pat pa plow pebb pfor pthe pyear.
b. The paccounting ptime pperiod pis pended pon pDecember p31.
c. A ptwelve-month paccounting pperiod pthat pends pat pthe pend pof pa pmonth
pother pthan pDecember p31.
1-10. Money.
1-11. p p When pmoney pdoes pnot phold pa pstable pvalue, pthe pfinancial pstatements pcan
plose pmuch pof ptheir psignificance. p To pthe pextent pthat pmoney pdoes pnot premain
pstable, pit ploses pusefulness pas pthe pstandard pfor pmeasuring pfinancial
ptransactions.
1-12. No. p There pis pa pproblem pwith pdetermining pthe pindex pin porder pto padjust pthe
pstatements. p The pitems pthat pare pincluded pin pthe pindex pmust pbe
prepresentative. pIn paddition, pthe pprices pof pitems pchange pbecause pof pvarious
pfactors, psuch pas pquality, ptechnology, pand pinflation.
Yes. pA preasonable padjustment pto pthe pstatements pcan pbe pmade pfor pinflation.
1-13. False. p An parbitrary pwrite-off pof pinventory pcannot pbe pjustified punder pthe
pconservatism pconcept. p The pconservatism pconcept pcan ponly pbe papplied
pwhere pthere pare palternative pmeasurements pand peach pof pthese palternative
pmeasurements phas preasonable psupport.
1-14. Yes, pinventory pthat phas pa pmarket pvalue pbelow pthe phistorical pcost pshould pbe
pwritten pdown pin porder pto precognize pa ploss. p This pis pdone pbased pupon pthe
pconcept pof pconservatism. p Losses pthat pcan pbe preasonably panticipated
pshould pbe ptaken pin porder pto preflect pthe pleast pfavorable peffect pon pnet
, income pof pthe pcurrent pperiod.
p
p p p p p
13th Edition
p
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
p p p p p p p p p p p
, Chapter p1
pIntroduction pto pFinancial
pReporting
QUESTIONS
1- 1. a. The pAICPA pis pan porganization pof pCPAs pthat pprior pto p1973 paccepted pthe
pprimary presponsibility pfor pthe pdevelopment pof pgenerally paccepted
paccounting pprinciples. pTheir prole pwas psubstantially preduced pin p1973
pwhen pthe pFinancial pAccounting pStandards pBoard pwas pestablished.
p Their prole pwas pfurther preduced pwith pthe pestablishment pof pthe pPublic
pCompany pAccounting pOversight pBoard pwas pestablished pin p2002.
b. The pFinancial pAccounting pStandards pBoard preplaced pthe
pAccounting pPrinciples pBoard pas pthe pprimary prule-making pbody pfor
paccounting pstandards. pIt pis pan pindependent porganization pand
pincludes pmembers pother pthan ppublic paccountants.
c. The pSEC phas pthe pauthority pto pdetermine pgenerally paccepted
paccounting pprinciples pand pto pregulate pthe paccounting pprofession. pThe
pSEC phas pelected pto pleave pmuch pof pthe pdetermination pof pgenerally
paccepted paccounting pprinciples pto pthe pprivate psector. p The pFinancial
pAccounting pStandards pBoard phas pplayed pthe pmajor prole pin
pestablishing paccounting pstandards psince p1973. p Regulation pof pthe
paccounting pprofession pwas psubstantially pturned pover pto pthe pPublic
pCompany pAccounting pOversight pBoard pin p2002.
1- p2. Consistency pis pobtained pthrough pthe papplication pof pthe psame
paccounting pprinciple pfrom pperiod pto pperiod. p A pchange pin pprinciple
prequires pstatement pdisclosure.
1- p3. The pconcept pof phistorical pcost pdetermines pthe pbalance psheet pvaluation pof
pland. pThe prealization pconcept prequires pthat pa ptransaction pneeds pto poccur pfor
pthe pprofit pto pbe precognized.
1- p4. a. p Entity e. p Historical pcost
b. Realization f. p Historical pcost
c. Materiality g. p Disclosure
d. Conservatism
1- p5. Entity pconcept
,1- p6. Generally paccepted paccounting pprinciples pdo pnot papply pwhen pa pfirm pdoes
pnot pappear pto pbe pa pgoing pconcern. p If pthe pdecision pis pmade pthat pthis pis pnot
pa pgoing pconcern, pthen pthe puse pof pGAAP pwould pnot pbe pappropriate.
1- p7. With pthe ptime pperiod passumption, pinaccuracies pof paccounting pfor pthe pentity,
pshort pof pits pcomplete plife pspan, pare paccepted. pThe passumption pis pmade pthat
pthe pentity pcan pbe paccounted pfor preasonably paccurately pfor pa pparticular pperiod
pof ptime. p In pother pwords, pthe pdecision pis pmade pto paccept psome pinaccuracy
pbecause pof pincomplete pinformation pabout pthe pfuture pin pexchange pfor pmore
ptimely preporting. p The pstatements pare pconsidered pto pbe pmeaningful pbecause
pmaterial pinaccuracies pare pnot pacceptable.
1- 8. p p It pis ptrue pthat pthe ponly paccurate pway pto paccount pfor pthe psuccess por pfailure pof
pan pentity pis pto paccumulate pall ptransactions pfrom pthe popening pof pbusiness
puntil pthe pbusiness peventually pliquidates. p But pit pis pnot pnecessary pthat pthe
pstatements pbe pcompletely paccurate pin porder pfor pthem pto pbe pmeaningful.
1- 9. a. A pyear pthat pends pwhen poperations pare pat pa plow pebb pfor pthe pyear.
b. The paccounting ptime pperiod pis pended pon pDecember p31.
c. A ptwelve-month paccounting pperiod pthat pends pat pthe pend pof pa pmonth
pother pthan pDecember p31.
1-10. Money.
1-11. p p When pmoney pdoes pnot phold pa pstable pvalue, pthe pfinancial pstatements pcan
plose pmuch pof ptheir psignificance. p To pthe pextent pthat pmoney pdoes pnot premain
pstable, pit ploses pusefulness pas pthe pstandard pfor pmeasuring pfinancial
ptransactions.
1-12. No. p There pis pa pproblem pwith pdetermining pthe pindex pin porder pto padjust pthe
pstatements. p The pitems pthat pare pincluded pin pthe pindex pmust pbe
prepresentative. pIn paddition, pthe pprices pof pitems pchange pbecause pof pvarious
pfactors, psuch pas pquality, ptechnology, pand pinflation.
Yes. pA preasonable padjustment pto pthe pstatements pcan pbe pmade pfor pinflation.
1-13. False. p An parbitrary pwrite-off pof pinventory pcannot pbe pjustified punder pthe
pconservatism pconcept. p The pconservatism pconcept pcan ponly pbe papplied
pwhere pthere pare palternative pmeasurements pand peach pof pthese palternative
pmeasurements phas preasonable psupport.
1-14. Yes, pinventory pthat phas pa pmarket pvalue pbelow pthe phistorical pcost pshould pbe
pwritten pdown pin porder pto precognize pa ploss. p This pis pdone pbased pupon pthe
pconcept pof pconservatism. p Losses pthat pcan pbe preasonably panticipated
pshould pbe ptaken pin porder pto preflect pthe pleast pfavorable peffect pon pnet
, income pof pthe pcurrent pperiod.
p
