Solution kManual kFor kFinancial kStatement kAnalysis,
13th Edition
k
By kCharles kH. kGibson, kVerified kChapter's k1 k- k13 k| kComplete k
, Chapter k1
k Introduction kto kFinancial
kReporting
QUESTIONS
1- 1. a. The kAICPA kis kan korganization kof kCPAs kthat kprior kto k1973 kaccepted
kthe kprimary kresponsibility kfor kthe kdevelopment kof kgenerally
kaccepted kaccounting kprinciples. kTheir krole kwas ksubstantially kreduced
kin k1973 kwhen kthe kFinancial kAccounting kStandards kBoard kwas
kestablished. k Their krole kwas kfurther kreduced kwith kthe kestablishment
kof kthe kPublic kCompany kAccounting kOversight kBoard kwas
kestablished kin k2002.
b. The kFinancial kAccounting kStandards kBoard kreplaced kthe
kAccounting kPrinciples kBoard kas kthe kprimary krule-making kbody
kfor kaccounting kstandards. kIt kis kan kindependent korganization
kand kincludes kmembers kother kthan kpublic kaccountants.
c. The kSEC khas kthe kauthority kto kdetermine kgenerally kaccepted
kaccounting kprinciples kand kto kregulate kthe kaccounting kprofession.
kThe kSEC khas kelected kto kleave kmuch kof kthe kdetermination kof
kgenerally kaccepted kaccounting kprinciples kto kthe kprivate ksector.
k The kFinancial kAccounting kStandards kBoard khas kplayed kthe kmajor
krole kin kestablishing kaccounting kstandards ksince k1973. k Regulation
kof kthe kaccounting kprofession kwas ksubstantially kturned kover kto kthe
kPublic kCompany kAccounting kOversight kBoard kin k2002.
1- k2. Consistency kis kobtained kthrough kthe kapplication kof kthe ksame
kaccounting kprinciple kfrom kperiod kto kperiod. k A kchange kin kprinciple
krequires kstatement kdisclosure.
1- k3. The kconcept kof khistorical kcost kdetermines kthe kbalance ksheet kvaluation kof
kland. kThe krealization kconcept krequires kthat ka ktransaction kneeds kto koccur
kfor kthe kprofit kto kbe krecognized.
1- k4. a. k Entity e. k Historical kcost
b. Realization f. k Historical kcost
c. Materiality g. k Disclosure
d. Conservatism
1- k5. Entity kconcept
,1- k6. Generally kaccepted kaccounting kprinciples kdo knot kapply kwhen ka kfirm
kdoes knot kappear kto kbe ka kgoing kconcern. k If kthe kdecision kis kmade kthat
kthis kis knot ka kgoing kconcern, kthen kthe kuse kof kGAAP kwould knot kbe
kappropriate.
1- k7. With kthe ktime kperiod kassumption, kinaccuracies kof kaccounting kfor kthe
kentity, kshort kof kits kcomplete klife kspan, kare kaccepted. kThe kassumption kis
kmade kthat kthe kentity kcan kbe kaccounted kfor kreasonably kaccurately kfor ka
kparticular kperiod kof ktime. k In kother kwords, kthe kdecision kis kmade kto
kaccept ksome kinaccuracy kbecause kof kincomplete kinformation kabout kthe
kfuture kin kexchange kfor kmore ktimely kreporting. k The kstatements kare
kconsidered kto kbe kmeaningful kbecause kmaterial kinaccuracies kare knot
kacceptable.
1- 8. k k It kis ktrue kthat kthe konly kaccurate kway kto kaccount kfor kthe ksuccess kor
kfailure kof kan kentity kis kto kaccumulate kall ktransactions kfrom kthe kopening
kof kbusiness kuntil kthe kbusiness keventually kliquidates. k But kit kis knot
knecessary kthat kthe kstatements kbe kcompletely kaccurate kin korder kfor
kthem kto kbe kmeaningful.
1- 9. a. A kyear kthat kends kwhen koperations kare kat ka klow kebb kfor kthe kyear.
b. The kaccounting ktime kperiod kis kended kon kDecember k31.
c. A ktwelve-month kaccounting kperiod kthat kends kat kthe kend kof ka kmonth
kother kthan kDecember k31.
1-10. Money.
1-11. k k When kmoney kdoes knot khold ka kstable kvalue, kthe kfinancial kstatements
kcan klose kmuch kof ktheir ksignificance. k To kthe kextent kthat kmoney kdoes
knot kremain kstable, kit kloses kusefulness kas kthe kstandard kfor kmeasuring
kfinancial ktransactions.
1-12. No. k There kis ka kproblem kwith kdetermining kthe kindex kin korder kto kadjust
kthe kstatements. k The kitems kthat kare kincluded kin kthe kindex kmust kbe
krepresentative. kIn kaddition, kthe kprices kof kitems kchange kbecause kof
kvarious kfactors, ksuch kas kquality, ktechnology, kand kinflation.
Yes. kA kreasonable kadjustment kto kthe kstatements kcan kbe kmade kfor kinflation.
1-13. False. k An karbitrary kwrite-off kof kinventory kcannot kbe kjustified kunder kthe
kconservatism kconcept. k The kconservatism kconcept kcan konly kbe kapplied
kwhere kthere kare kalternative kmeasurements kand keach kof kthese
kalternative kmeasurements khas kreasonable ksupport.
1-14. Yes, kinventory kthat khas ka kmarket kvalue kbelow kthe khistorical kcost
, kshould kbe kwritten kdown kin korder kto krecognize ka kloss. k This kis kdone
kbased kupon kthe kconcept kof kconservatism. k Losses kthat kcan kbe
kreasonably kanticipated kshould kbe ktaken kin korder kto kreflect kthe kleast
kfavorable keffect kon knet kincome kof kthe kcurrent kperiod.
13th Edition
k
By kCharles kH. kGibson, kVerified kChapter's k1 k- k13 k| kComplete k
, Chapter k1
k Introduction kto kFinancial
kReporting
QUESTIONS
1- 1. a. The kAICPA kis kan korganization kof kCPAs kthat kprior kto k1973 kaccepted
kthe kprimary kresponsibility kfor kthe kdevelopment kof kgenerally
kaccepted kaccounting kprinciples. kTheir krole kwas ksubstantially kreduced
kin k1973 kwhen kthe kFinancial kAccounting kStandards kBoard kwas
kestablished. k Their krole kwas kfurther kreduced kwith kthe kestablishment
kof kthe kPublic kCompany kAccounting kOversight kBoard kwas
kestablished kin k2002.
b. The kFinancial kAccounting kStandards kBoard kreplaced kthe
kAccounting kPrinciples kBoard kas kthe kprimary krule-making kbody
kfor kaccounting kstandards. kIt kis kan kindependent korganization
kand kincludes kmembers kother kthan kpublic kaccountants.
c. The kSEC khas kthe kauthority kto kdetermine kgenerally kaccepted
kaccounting kprinciples kand kto kregulate kthe kaccounting kprofession.
kThe kSEC khas kelected kto kleave kmuch kof kthe kdetermination kof
kgenerally kaccepted kaccounting kprinciples kto kthe kprivate ksector.
k The kFinancial kAccounting kStandards kBoard khas kplayed kthe kmajor
krole kin kestablishing kaccounting kstandards ksince k1973. k Regulation
kof kthe kaccounting kprofession kwas ksubstantially kturned kover kto kthe
kPublic kCompany kAccounting kOversight kBoard kin k2002.
1- k2. Consistency kis kobtained kthrough kthe kapplication kof kthe ksame
kaccounting kprinciple kfrom kperiod kto kperiod. k A kchange kin kprinciple
krequires kstatement kdisclosure.
1- k3. The kconcept kof khistorical kcost kdetermines kthe kbalance ksheet kvaluation kof
kland. kThe krealization kconcept krequires kthat ka ktransaction kneeds kto koccur
kfor kthe kprofit kto kbe krecognized.
1- k4. a. k Entity e. k Historical kcost
b. Realization f. k Historical kcost
c. Materiality g. k Disclosure
d. Conservatism
1- k5. Entity kconcept
,1- k6. Generally kaccepted kaccounting kprinciples kdo knot kapply kwhen ka kfirm
kdoes knot kappear kto kbe ka kgoing kconcern. k If kthe kdecision kis kmade kthat
kthis kis knot ka kgoing kconcern, kthen kthe kuse kof kGAAP kwould knot kbe
kappropriate.
1- k7. With kthe ktime kperiod kassumption, kinaccuracies kof kaccounting kfor kthe
kentity, kshort kof kits kcomplete klife kspan, kare kaccepted. kThe kassumption kis
kmade kthat kthe kentity kcan kbe kaccounted kfor kreasonably kaccurately kfor ka
kparticular kperiod kof ktime. k In kother kwords, kthe kdecision kis kmade kto
kaccept ksome kinaccuracy kbecause kof kincomplete kinformation kabout kthe
kfuture kin kexchange kfor kmore ktimely kreporting. k The kstatements kare
kconsidered kto kbe kmeaningful kbecause kmaterial kinaccuracies kare knot
kacceptable.
1- 8. k k It kis ktrue kthat kthe konly kaccurate kway kto kaccount kfor kthe ksuccess kor
kfailure kof kan kentity kis kto kaccumulate kall ktransactions kfrom kthe kopening
kof kbusiness kuntil kthe kbusiness keventually kliquidates. k But kit kis knot
knecessary kthat kthe kstatements kbe kcompletely kaccurate kin korder kfor
kthem kto kbe kmeaningful.
1- 9. a. A kyear kthat kends kwhen koperations kare kat ka klow kebb kfor kthe kyear.
b. The kaccounting ktime kperiod kis kended kon kDecember k31.
c. A ktwelve-month kaccounting kperiod kthat kends kat kthe kend kof ka kmonth
kother kthan kDecember k31.
1-10. Money.
1-11. k k When kmoney kdoes knot khold ka kstable kvalue, kthe kfinancial kstatements
kcan klose kmuch kof ktheir ksignificance. k To kthe kextent kthat kmoney kdoes
knot kremain kstable, kit kloses kusefulness kas kthe kstandard kfor kmeasuring
kfinancial ktransactions.
1-12. No. k There kis ka kproblem kwith kdetermining kthe kindex kin korder kto kadjust
kthe kstatements. k The kitems kthat kare kincluded kin kthe kindex kmust kbe
krepresentative. kIn kaddition, kthe kprices kof kitems kchange kbecause kof
kvarious kfactors, ksuch kas kquality, ktechnology, kand kinflation.
Yes. kA kreasonable kadjustment kto kthe kstatements kcan kbe kmade kfor kinflation.
1-13. False. k An karbitrary kwrite-off kof kinventory kcannot kbe kjustified kunder kthe
kconservatism kconcept. k The kconservatism kconcept kcan konly kbe kapplied
kwhere kthere kare kalternative kmeasurements kand keach kof kthese
kalternative kmeasurements khas kreasonable ksupport.
1-14. Yes, kinventory kthat khas ka kmarket kvalue kbelow kthe khistorical kcost
, kshould kbe kwritten kdown kin korder kto krecognize ka kloss. k This kis kdone
kbased kupon kthe kconcept kof kconservatism. k Losses kthat kcan kbe
kreasonably kanticipated kshould kbe ktaken kin korder kto kreflect kthe kleast
kfavorable keffect kon knet kincome kof kthe kcurrent kperiod.
