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 cprofession. cThe cSEC chas
celected cto cleave cmuch cof cthe cdetermination cof cgenerally caccepted
caccounting cprinciples cto cthe cprivate csector. c The cFinancial
cAccounting cStandards cBoard chas cplayed cthe cmajor crole cin
cestablishing caccounting cstandards csince c1973. c Regulation cof cthe
caccounting cprofession cwas csubstantially cturned cover cto cthe cPublic
cCompany cAccounting cOversight cBoard cin c2002.
1- c2. Consistency cis cobtained cthrough cthe capplication cof cthe csame
caccounting cprinciple cfrom cperiod cto cperiod. c A cchange cin cprinciple
crequires cstatement cdisclosure.
1- c3. The cconcept cof chistorical ccost cdetermines cthe cbalance csheet cvaluation cof
cland. cThe crealization cconcept crequires cthat ca ctransaction cneeds cto coccur
cfor cthe cprofit cto cbe crecognized.
1- c4. a. c Entity e. c Historical ccost
b. Realization f. c Historical ccost
c. Materiality g. c Disclosure
d. Conservatism
1- c5. Entity cconcept
,1- c6. Generally caccepted caccounting cprinciples cdo cnot capply cwhen ca cfirm
cdoes cnot cappear cto cbe ca cgoing cconcern. c If cthe cdecision cis cmade cthat
cthis cis cnot ca cgoing cconcern, cthen cthe cuse cof cGAAP cwould cnot cbe
cappropriate.
1- c7. With cthe ctime cperiod cassumption, cinaccuracies cof caccounting cfor cthe
centity, cshort cof cits ccomplete clife cspan, care caccepted. cThe cassumption cis
cmade cthat cthe centity ccan cbe caccounted cfor creasonably caccurately cfor ca
cparticular cperiod cof ctime. c In cother cwords, cthe cdecision cis cmade cto
caccept csome cinaccuracy cbecause cof cincomplete cinformation cabout cthe
cfuture cin cexchange cfor cmore ctimely creporting. c The cstatements care
cconsidered cto cbe cmeaningful cbecause cmaterial cinaccuracies care cnot
cacceptable.
1- 8. c c It cis ctrue cthat cthe conly caccurate cway cto caccount cfor cthe csuccess cor
cfailure cof can centity cis cto caccumulate call ctransactions cfrom cthe copening
cof cbusiness cuntil cthe cbusiness ceventually cliquidates. c But cit cis cnot
cnecessary cthat cthe cstatements cbe ccompletely caccurate cin corder cfor
cthem cto cbe cmeaningful.
1- 9. a. A cyear cthat cends cwhen coperations care cat ca clow cebb cfor cthe cyear.
b. The caccounting ctime cperiod cis cended con cDecember c31.
c. A ctwelve-month caccounting cperiod cthat cends cat cthe cend cof ca cmonth
cother cthan cDecember c31.
1-10. Money.
1-11. c c When cmoney cdoes cnot chold ca cstable cvalue, cthe cfinancial cstatements
ccan close cmuch cof ctheir csignificance. c To cthe cextent cthat cmoney cdoes
cnot cremain cstable, cit closes cusefulness cas cthe cstandard cfor cmeasuring
cfinancial ctransactions.
1-12. No. c There cis ca cproblem cwith cdetermining cthe cindex cin corder cto cadjust
cthe cstatements. c The citems cthat care cincluded cin cthe cindex cmust cbe
crepresentative. cIn caddition, cthe cprices cof citems cchange cbecause cof
cvarious cfactors, csuch cas cquality, ctechnology, cand cinflation.
Yes. cA creasonable cadjustment cto cthe cstatements ccan cbe cmade cfor cinflation.
1-13. False. c An carbitrary cwrite-off cof cinventory ccannot cbe cjustified cunder cthe
cconservatism cconcept. c The cconservatism cconcept ccan conly cbe capplied
cwhere cthere care calternative cmeasurements cand ceach cof cthese
calternative cmeasurements chas creasonable csupport.
1-14. Yes, cinventory cthat chas ca cmarket cvalue cbelow cthe chistorical ccost
, cshould cbe cwritten cdown cin corder cto crecognize ca closs. c This cis cdone
cbased cupon cthe cconcept cof cconservatism. c Losses cthat ccan cbe
creasonably canticipated cshould cbe ctaken cin corder cto creflect cthe cleast
cfavorable ceffect con cnet cincome cof cthe ccurrent cperiod.
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 cprofession. cThe cSEC chas
celected cto cleave cmuch cof cthe cdetermination cof cgenerally caccepted
caccounting cprinciples cto cthe cprivate csector. c The cFinancial
cAccounting cStandards cBoard chas cplayed cthe cmajor crole cin
cestablishing caccounting cstandards csince c1973. c Regulation cof cthe
caccounting cprofession cwas csubstantially cturned cover cto cthe cPublic
cCompany cAccounting cOversight cBoard cin c2002.
1- c2. Consistency cis cobtained cthrough cthe capplication cof cthe csame
caccounting cprinciple cfrom cperiod cto cperiod. c A cchange cin cprinciple
crequires cstatement cdisclosure.
1- c3. The cconcept cof chistorical ccost cdetermines cthe cbalance csheet cvaluation cof
cland. cThe crealization cconcept crequires cthat ca ctransaction cneeds cto coccur
cfor cthe cprofit cto cbe crecognized.
1- c4. a. c Entity e. c Historical ccost
b. Realization f. c Historical ccost
c. Materiality g. c Disclosure
d. Conservatism
1- c5. Entity cconcept
,1- c6. Generally caccepted caccounting cprinciples cdo cnot capply cwhen ca cfirm
cdoes cnot cappear cto cbe ca cgoing cconcern. c If cthe cdecision cis cmade cthat
cthis cis cnot ca cgoing cconcern, cthen cthe cuse cof cGAAP cwould cnot cbe
cappropriate.
1- c7. With cthe ctime cperiod cassumption, cinaccuracies cof caccounting cfor cthe
centity, cshort cof cits ccomplete clife cspan, care caccepted. cThe cassumption cis
cmade cthat cthe centity ccan cbe caccounted cfor creasonably caccurately cfor ca
cparticular cperiod cof ctime. c In cother cwords, cthe cdecision cis cmade cto
caccept csome cinaccuracy cbecause cof cincomplete cinformation cabout cthe
cfuture cin cexchange cfor cmore ctimely creporting. c The cstatements care
cconsidered cto cbe cmeaningful cbecause cmaterial cinaccuracies care cnot
cacceptable.
1- 8. c c It cis ctrue cthat cthe conly caccurate cway cto caccount cfor cthe csuccess cor
cfailure cof can centity cis cto caccumulate call ctransactions cfrom cthe copening
cof cbusiness cuntil cthe cbusiness ceventually cliquidates. c But cit cis cnot
cnecessary cthat cthe cstatements cbe ccompletely caccurate cin corder cfor
cthem cto cbe cmeaningful.
1- 9. a. A cyear cthat cends cwhen coperations care cat ca clow cebb cfor cthe cyear.
b. The caccounting ctime cperiod cis cended con cDecember c31.
c. A ctwelve-month caccounting cperiod cthat cends cat cthe cend cof ca cmonth
cother cthan cDecember c31.
1-10. Money.
1-11. c c When cmoney cdoes cnot chold ca cstable cvalue, cthe cfinancial cstatements
ccan close cmuch cof ctheir csignificance. c To cthe cextent cthat cmoney cdoes
cnot cremain cstable, cit closes cusefulness cas cthe cstandard cfor cmeasuring
cfinancial ctransactions.
1-12. No. c There cis ca cproblem cwith cdetermining cthe cindex cin corder cto cadjust
cthe cstatements. c The citems cthat care cincluded cin cthe cindex cmust cbe
crepresentative. cIn caddition, cthe cprices cof citems cchange cbecause cof
cvarious cfactors, csuch cas cquality, ctechnology, cand cinflation.
Yes. cA creasonable cadjustment cto cthe cstatements ccan cbe cmade cfor cinflation.
1-13. False. c An carbitrary cwrite-off cof cinventory ccannot cbe cjustified cunder cthe
cconservatism cconcept. c The cconservatism cconcept ccan conly cbe capplied
cwhere cthere care calternative cmeasurements cand ceach cof cthese
calternative cmeasurements chas creasonable csupport.
1-14. Yes, cinventory cthat chas ca cmarket cvalue cbelow cthe chistorical ccost
, cshould cbe cwritten cdown cin corder cto crecognize ca closs. c This cis cdone
cbased cupon cthe cconcept cof cconservatism. c Losses cthat ccan cbe
creasonably canticipated cshould cbe ctaken cin corder cto creflect cthe cleast
cfavorable ceffect con cnet cincome cof cthe ccurrent cperiod.
