INSTRUCTOR’S SOLUTIONS MANUAL G G
for
FinancialAccounting g g
Theory
Seventh Edition g
William R. Scott g g
University of Waterloo
g g
Toronto
Copyrightg©g2015gPearsongCanadagInc.,gToronto,gOntario.gAllgrightsgreserved.gThisgworkgisgprotectedgbygCanadiangcopyr
ightglawsgandgisgprovidedgsolelygforgthegusegofginstructorsgingteachinggtheirgcoursesgandgassessinggstudentglearning.gDisse
minationgorgsalegofganygpartgofgthisgworkg(includinggongthegInternet)gwillgdestroygthegintegritygofgthegworkgandgisgnotgper
mitted.gThegcopyrightgholderggrantsgpermissiongtoginstructorsgwhoghavegadoptedgFinancialgAccountinggTheory,gSeventhgE
dition,gbygWilliamgR.gScottgtogpostgthisgmaterialgonlinegonlygifgthegusegofgthegwebsitegisgrestrictedgbygaccessgcodesgtogstud
entsgingtheginstructor’sgclassgthatgisgusinggthegtextbookgandgprovidedgthegreproducedgmaterialgbearsgthisgcopyrightgnotice.
, Contents
Chapterg1 Introduction .................................................................................................. 1
Chapterg2 AccountinggUndergIdealgConditions ........................................................... 7
Chapterg3 ThegDecisiongUsefulnessgApproachgtogFinancialgReporting ....................... 68
Chapterg4 EfficientgSecuritiesgMarkets ....................................................................... 129
Chapterg5 ThegValuegRelevancegofgAccountinggInformation ...................................... 153
Chapterg6 ThegMeasurementgApproachgtogDecisiongUsefulness ................................. 194
Chapterg7 MeasurementgApplications ......................................................................... 237
Chapterg8 ThegEfficientgContractinggApproachgtogDecisiongUsefulness ..................... 285
Chapterg9 AngAnalysisgofgConflict ............................................................................ 321
Chapterg10g ExecutivegCompensation .......................................................................... 371
Chapterg11g EarningsgManagement .............................................................................. 425
Chapterg12g StandardgSetting:gEconomicgIssues ........................................................... 487
Chapterg13g StandardgSetting:gPoliticalgIssues .............................................................. 527
Copyrightg©g2015gPearsongCanadagInc.
,Scott,gFinancialgAccountinggTheory,g7thgEdition Instructor’sgSolutionsgManualgChapterg1
CHAPTER 1 INTROD
G G
UCTION
1.1 ThegObjectivegofgThisgBook
1.2 Someg HistoricalgPerspective
1.3 Theg2007-2008gMarketgMeltdowns
1.4 EfficientgContracting
1.5 AgNotegongEthicalgBehaviour
1.6 Rules-Basedg v.g Principles-Basedg Accountingg Standards
1.7 ThegComplexitygofgInformationgingFinancialgAccountinggandgReporting
1.8 ThegRolegofgAccountinggResearch
1.9 ThegImportancegofgInformationgAsymmetry
1.10 ThegFundamentalgProblemgofgFinancialgAccountinggTheory
1.11 RegulationgasgagReactiongtogthegFundamentalgProblem
1.12 ThegOrganizationgofgThisgBook
1.12.1 IdealgConditions
1.12.2 Adverseg Selection
1.12.3 MoralgHazard
1.12.4 StandardgSetting
1.12.5 ThegProcessgofg StandardgSetting
1.13 RelevancegofgFinancialgAccountinggTheorygtogAccountinggPractice
1
Copyrightg©g2015gPearsongCanadagInc.
, Scott,gFinancialgAccountinggTheory,g7thgEdition Instructor’sgSolutionsgManualgChapterg1
LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
G G G G G
1. ThegBroadgOutlinegofgthegBook
IgusegFigureg1.1gasgagtemplategtogdescribegthegbroadgoutlinegofgthegbook.gSincegthegs
tudentsgtypicallyghavegnotghadgagchancegtogreadgChapterg1gingthegfirstgcoursegsession,
I stickgfairlygcloselygtogthegchaptergmaterial.
g g
ThegmajorgpointsgIgdiscussgare:
• Accountinggingangidealgsetting.gHere,gpresent-value-
basedgaccountinggisgnatural.gIggogovergthegidealgconditionsgneededgforgsu
chgagbasisgofgaccountinggtogbegfeasible,gbutgdognotggogintogmuchgdetailg
becausegthisgtopicgisgcoveredginggreatergdepthgingChapterg2.
• Angintroductiongtogthegconceptgofginformationgasymmetrygandgresultin
ggproblemsgofgadversegselectiongandgmoralghazard.gThesegproblemsg
aregbasicgtogthegbookgandgIgfeelgitgisgdesirablegforgthegstudentsgtoghavegag
“firstggo”gatgthemgatgthisgpoint.gIgconcentrategongthegintuitiongunderlyingg
thegtwogproblems.gForgexample,gadversegselectiongcangbegillustratedg
bygaskinggwhogwouldgbegfirstginglinegtogpurchaseglifeginsurancegifgthereg
wasgnogmedicalgexamination,gorgwhatgqualitygofgusedgcarsgareglikelygtog
begbroughtgtogmarket.gForgmoralghazardgIgtrygtogpingthemgdowngonghow
hardgtheygwouldgworkgingthisgcoursegifgtheregweregnogexams.
• Thegenvironmentgingwhichgfinancialgaccountinggandgreportinggoperat
es.gMygmainggoalgatgthisgpointgisgthatgthegstudentsgdognotgtakegthisgenvir
onmentgforggranted.gIgdiscussgthegproceduresgofgstandardgsettinggbrie
flygandgpointgoutgthatgthisgisgreallygagprocessgofgregulation.gIngthegpast,gt
hereghavegbeengwell-
knowngcasesgofgderegulation,gsuchgasgairlines,gtrucking,gfinancialginsti
tutions,gpowerggeneration.gHowever,gwegaregenteringgwhatgisglikelygto
begagperiodgofgincreasinggregulation,gatgleastgforgfinancialginstitutions.gI
g
nstructors
2
Copyrightg©g2015gPearsongCanadagInc.
for
FinancialAccounting g g
Theory
Seventh Edition g
William R. Scott g g
University of Waterloo
g g
Toronto
Copyrightg©g2015gPearsongCanadagInc.,gToronto,gOntario.gAllgrightsgreserved.gThisgworkgisgprotectedgbygCanadiangcopyr
ightglawsgandgisgprovidedgsolelygforgthegusegofginstructorsgingteachinggtheirgcoursesgandgassessinggstudentglearning.gDisse
minationgorgsalegofganygpartgofgthisgworkg(includinggongthegInternet)gwillgdestroygthegintegritygofgthegworkgandgisgnotgper
mitted.gThegcopyrightgholderggrantsgpermissiongtoginstructorsgwhoghavegadoptedgFinancialgAccountinggTheory,gSeventhgE
dition,gbygWilliamgR.gScottgtogpostgthisgmaterialgonlinegonlygifgthegusegofgthegwebsitegisgrestrictedgbygaccessgcodesgtogstud
entsgingtheginstructor’sgclassgthatgisgusinggthegtextbookgandgprovidedgthegreproducedgmaterialgbearsgthisgcopyrightgnotice.
, Contents
Chapterg1 Introduction .................................................................................................. 1
Chapterg2 AccountinggUndergIdealgConditions ........................................................... 7
Chapterg3 ThegDecisiongUsefulnessgApproachgtogFinancialgReporting ....................... 68
Chapterg4 EfficientgSecuritiesgMarkets ....................................................................... 129
Chapterg5 ThegValuegRelevancegofgAccountinggInformation ...................................... 153
Chapterg6 ThegMeasurementgApproachgtogDecisiongUsefulness ................................. 194
Chapterg7 MeasurementgApplications ......................................................................... 237
Chapterg8 ThegEfficientgContractinggApproachgtogDecisiongUsefulness ..................... 285
Chapterg9 AngAnalysisgofgConflict ............................................................................ 321
Chapterg10g ExecutivegCompensation .......................................................................... 371
Chapterg11g EarningsgManagement .............................................................................. 425
Chapterg12g StandardgSetting:gEconomicgIssues ........................................................... 487
Chapterg13g StandardgSetting:gPoliticalgIssues .............................................................. 527
Copyrightg©g2015gPearsongCanadagInc.
,Scott,gFinancialgAccountinggTheory,g7thgEdition Instructor’sgSolutionsgManualgChapterg1
CHAPTER 1 INTROD
G G
UCTION
1.1 ThegObjectivegofgThisgBook
1.2 Someg HistoricalgPerspective
1.3 Theg2007-2008gMarketgMeltdowns
1.4 EfficientgContracting
1.5 AgNotegongEthicalgBehaviour
1.6 Rules-Basedg v.g Principles-Basedg Accountingg Standards
1.7 ThegComplexitygofgInformationgingFinancialgAccountinggandgReporting
1.8 ThegRolegofgAccountinggResearch
1.9 ThegImportancegofgInformationgAsymmetry
1.10 ThegFundamentalgProblemgofgFinancialgAccountinggTheory
1.11 RegulationgasgagReactiongtogthegFundamentalgProblem
1.12 ThegOrganizationgofgThisgBook
1.12.1 IdealgConditions
1.12.2 Adverseg Selection
1.12.3 MoralgHazard
1.12.4 StandardgSetting
1.12.5 ThegProcessgofg StandardgSetting
1.13 RelevancegofgFinancialgAccountinggTheorygtogAccountinggPractice
1
Copyrightg©g2015gPearsongCanadagInc.
, Scott,gFinancialgAccountinggTheory,g7thgEdition Instructor’sgSolutionsgManualgChapterg1
LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
G G G G G
1. ThegBroadgOutlinegofgthegBook
IgusegFigureg1.1gasgagtemplategtogdescribegthegbroadgoutlinegofgthegbook.gSincegthegs
tudentsgtypicallyghavegnotghadgagchancegtogreadgChapterg1gingthegfirstgcoursegsession,
I stickgfairlygcloselygtogthegchaptergmaterial.
g g
ThegmajorgpointsgIgdiscussgare:
• Accountinggingangidealgsetting.gHere,gpresent-value-
basedgaccountinggisgnatural.gIggogovergthegidealgconditionsgneededgforgsu
chgagbasisgofgaccountinggtogbegfeasible,gbutgdognotggogintogmuchgdetailg
becausegthisgtopicgisgcoveredginggreatergdepthgingChapterg2.
• Angintroductiongtogthegconceptgofginformationgasymmetrygandgresultin
ggproblemsgofgadversegselectiongandgmoralghazard.gThesegproblemsg
aregbasicgtogthegbookgandgIgfeelgitgisgdesirablegforgthegstudentsgtoghavegag
“firstggo”gatgthemgatgthisgpoint.gIgconcentrategongthegintuitiongunderlyingg
thegtwogproblems.gForgexample,gadversegselectiongcangbegillustratedg
bygaskinggwhogwouldgbegfirstginglinegtogpurchaseglifeginsurancegifgthereg
wasgnogmedicalgexamination,gorgwhatgqualitygofgusedgcarsgareglikelygtog
begbroughtgtogmarket.gForgmoralghazardgIgtrygtogpingthemgdowngonghow
hardgtheygwouldgworkgingthisgcoursegifgtheregweregnogexams.
• Thegenvironmentgingwhichgfinancialgaccountinggandgreportinggoperat
es.gMygmainggoalgatgthisgpointgisgthatgthegstudentsgdognotgtakegthisgenvir
onmentgforggranted.gIgdiscussgthegproceduresgofgstandardgsettinggbrie
flygandgpointgoutgthatgthisgisgreallygagprocessgofgregulation.gIngthegpast,gt
hereghavegbeengwell-
knowngcasesgofgderegulation,gsuchgasgairlines,gtrucking,gfinancialginsti
tutions,gpowerggeneration.gHowever,gwegaregenteringgwhatgisglikelygto
begagperiodgofgincreasinggregulation,gatgleastgforgfinancialginstitutions.gI
g
nstructors
2
Copyrightg©g2015gPearsongCanadagInc.
