Solution Manual For Financial Statement Analysis,
13th Edition
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
, Chapter 1
Introduction to Financial Reporting
QUESTIONS
1- 1. a. The AICPA is an organization of CPAs that prior to 1973 accepted the
primary responsibility for the development of generally accepted
accounting principles. Their role was substantially reduced in 1973 when
the Financial Accounting Standards Board was established. Their role
was further reduced with the establishment of the Public Company
Accounting Oversight Board was established in 2002.
b. The Financial Accounting Standards Board replaced the Accounting
Principles Board as the primary rule-making body for accounting
standards. It is an independent organization and includes members
other than public accountants.
c. The SEC has the authority to determine generally accepted accounting
principles and to regulate the accounting profession. The SEC has
elected to leave much of the determination of generally accepted
accounting principles to the private sector. The Financial Accounting
Standards Board has played the major role in establishing accounting
standards since 1973. Regulation of the accounting profession was
substantially turned over to the Public Company Accounting Oversight
Board in 2002.
1- 2. Consistency is obtained through the application of the same accounting
principle from period to period. A change in principle requires statement
disclosure.
1- 3. The concept of historical cost determines the balance sheet valuation of land.
The realization concept requires that a transaction needs to occur for the profit
to be recognized.
1- 4. a. Entity e. Historical cost
b. Realization f. Historical cost
c. Materiality g. Disclosure
d. Conservatism
1- 5. Entity concept
,1- 6. Generally accepted accounting principles do not apply when a firm does not
appear to be a going concern. If the decision is made that this is not a going
concern, then the use of GAAP would not be appropriate.
1- 7. With the time period assumption, inaccuracies of accounting for the entity,
short of its complete life span, are accepted. The assumption is made that the
entity can be accounted for reasonably accurately for a particular period of
time. In other words, the decision is made to accept some inaccuracy
because of incomplete information about the future in exchange for more
timely reporting. The statements are considered to be meaningful because
material inaccuracies are not acceptable.
1- 8. It is true that the only accurate way to account for the success or failure of an
entity is to accumulate all transactions from the opening of business until the
business eventually liquidates. But it is not necessary that the statements be
completely accurate in order for them to be meaningful.
1- 9. a. A year that ends when operations are at a low ebb for the year.
b. The accounting time period is ended on December 31.
c. A twelve-month accounting period that ends at the end of a month other
than December 31.
1-10. Money.
1-11. When amoney adoes anot ahold aa astable avalue, athe afinancial astatements acan
alose amuch aof atheir asignificance. a To athe aextent athat amoney adoes anot
aremain astable, ait aloses ausefulness aas athe astandard afor ameasuring
afinancial atransactions.
1-12. No. a There ais aa aproblem awith adetermining athe aindex ain aorder ato aadjust
athe astatements. a The aitems athat aare aincluded ain athe aindex amust abe
arepresentative. aIn aaddition, athe aprices aof aitems achange abecause aof
avarious afactors, asuch aas aquality, atechnology, aand ainflation.
Yes. aA areasonable aadjustment ato athe astatements acan abe amade afor ainflation.
1-13. False. a An aarbitrary awrite-off aof ainventory acannot abe ajustified aunder athe
aconservatism aconcept. a The aconservatism aconcept acan aonly abe aapplied
awhere athere aare aalternative ameasurements aand aeach aof athese
aalternative ameasurements ahas areasonable asupport.
1-14. Yes, ainventory athat ahas aa amarket avalue abelow athe ahistorical acost
ashould abe awritten adown ain aorder ato arecognize aa aloss. a This ais adone
abased aupon athe aconcept aof aconservatism. a Losses athat acan abe
areasonably aanticipated ashould abe ataken ain aorder ato areflect athe aleast
, afavorable aeffect aon anet aincome aof athe acurrent aperiod.
13th Edition
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
, Chapter 1
Introduction to Financial Reporting
QUESTIONS
1- 1. a. The AICPA is an organization of CPAs that prior to 1973 accepted the
primary responsibility for the development of generally accepted
accounting principles. Their role was substantially reduced in 1973 when
the Financial Accounting Standards Board was established. Their role
was further reduced with the establishment of the Public Company
Accounting Oversight Board was established in 2002.
b. The Financial Accounting Standards Board replaced the Accounting
Principles Board as the primary rule-making body for accounting
standards. It is an independent organization and includes members
other than public accountants.
c. The SEC has the authority to determine generally accepted accounting
principles and to regulate the accounting profession. The SEC has
elected to leave much of the determination of generally accepted
accounting principles to the private sector. The Financial Accounting
Standards Board has played the major role in establishing accounting
standards since 1973. Regulation of the accounting profession was
substantially turned over to the Public Company Accounting Oversight
Board in 2002.
1- 2. Consistency is obtained through the application of the same accounting
principle from period to period. A change in principle requires statement
disclosure.
1- 3. The concept of historical cost determines the balance sheet valuation of land.
The realization concept requires that a transaction needs to occur for the profit
to be recognized.
1- 4. a. Entity e. Historical cost
b. Realization f. Historical cost
c. Materiality g. Disclosure
d. Conservatism
1- 5. Entity concept
,1- 6. Generally accepted accounting principles do not apply when a firm does not
appear to be a going concern. If the decision is made that this is not a going
concern, then the use of GAAP would not be appropriate.
1- 7. With the time period assumption, inaccuracies of accounting for the entity,
short of its complete life span, are accepted. The assumption is made that the
entity can be accounted for reasonably accurately for a particular period of
time. In other words, the decision is made to accept some inaccuracy
because of incomplete information about the future in exchange for more
timely reporting. The statements are considered to be meaningful because
material inaccuracies are not acceptable.
1- 8. It is true that the only accurate way to account for the success or failure of an
entity is to accumulate all transactions from the opening of business until the
business eventually liquidates. But it is not necessary that the statements be
completely accurate in order for them to be meaningful.
1- 9. a. A year that ends when operations are at a low ebb for the year.
b. The accounting time period is ended on December 31.
c. A twelve-month accounting period that ends at the end of a month other
than December 31.
1-10. Money.
1-11. When amoney adoes anot ahold aa astable avalue, athe afinancial astatements acan
alose amuch aof atheir asignificance. a To athe aextent athat amoney adoes anot
aremain astable, ait aloses ausefulness aas athe astandard afor ameasuring
afinancial atransactions.
1-12. No. a There ais aa aproblem awith adetermining athe aindex ain aorder ato aadjust
athe astatements. a The aitems athat aare aincluded ain athe aindex amust abe
arepresentative. aIn aaddition, athe aprices aof aitems achange abecause aof
avarious afactors, asuch aas aquality, atechnology, aand ainflation.
Yes. aA areasonable aadjustment ato athe astatements acan abe amade afor ainflation.
1-13. False. a An aarbitrary awrite-off aof ainventory acannot abe ajustified aunder athe
aconservatism aconcept. a The aconservatism aconcept acan aonly abe aapplied
awhere athere aare aalternative ameasurements aand aeach aof athese
aalternative ameasurements ahas areasonable asupport.
1-14. Yes, ainventory athat ahas aa amarket avalue abelow athe ahistorical acost
ashould abe awritten adown ain aorder ato arecognize aa aloss. a This ais adone
abased aupon athe aconcept aof aconservatism. a Losses athat acan abe
areasonably aanticipated ashould abe ataken ain aorder ato areflect athe aleast
, afavorable aeffect aon anet aincome aof athe acurrent aperiod.
