Solution Manual for Financial Statement Analysis 13th Edition by Charles H. Gibson | Complete Chapter Solutions (1–14) | Updated Guide

Solution Manual
Financial Statement Analysis,13th Edition By Charles H. Gibson, Verified Chapter's 1 - 13 |
Complete

,Chapter 1 Introduction to Financial Reporting
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QUESTIONS

1- 1. a.
The AICPA is an organization of CPAs that prior to 1973 accepted the pri
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mary responsibility for the development of generally accepted accounting p
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rinciples. Their role was substantially reduced in 1973 when the Financial A
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ccounting Standards Board was established. Their role was further reduce
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d with the establishment of the Public Company Accounting Oversight Boar
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d was established in 2002.
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b. The Financial Accounting Standards Board replaced the Accounting Pri
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nciples Board as the primary rule- nf nf nf nf nf



making body for accounting standards. It is an independent organizati
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on and includes members other than public accountants.
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c. The SEC has the authority to determine generally accepted accounting pri
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nciples and to regulate the accounting profession. The SEC has elected to l
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eave much of the determination of generally accepted accounting principl
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es to the private sector. The Financial Accounting Standards Board has pl
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ayed the major role in establishing accounting standards since 1973. Reg
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ulation of the accounting profession was substantially turned over to the
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Public Company Accounting Oversight Board in 2002.
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1- 2.
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Consistency is obtained through the application of the same accounting pri
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nciple from period to period. A change in principle requires statement disc
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losure.

1- 3.
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The concept of historical cost determines the balance sheet valuation of land. The
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realization concept requires that a transaction needs to occur for the profit to be r
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ecognized.

1- 4.
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b. Realization f. Historical cost
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c. Materiality g. Disclosuren f




d. Conservatism

1- 5.
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,1- 6.
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Generally accepted accounting principles do not apply when a firm does not ap
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pear to be a going concern. If the decision is made that this is not a going conce
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rn, then the use of GAAP would not be appropriate.
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1- 7.
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With the time period assumption, inaccuracies of accounting for the entity, short
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of its complete life span, are accepted. The assumption is made that the entity can
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be accounted for reasonably accurately for a particular period of time. In other
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words, the decision is made to accept some inaccuracy because of incomplete inf
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ormation about the future in exchange for more timely reporting. The statement
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s are considered to be meaningful because material inaccuracies are not accepta
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ble.

1- 8. n f n f It is true that the only accurate way to account for the success or failure of an ent
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ity is to accumulate all transactions from the opening of business until the busin
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ess eventually liquidates. But it is not necessary that the statements be complet
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ely accurate in order for them to be meaningful.
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1- 9. a. A year that ends when operations are at a low ebb for the year.
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b. The accounting time period is ended on December 31.
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c. A twelve-
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month accounting period that ends at the end of a month other than Dece
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mber 31. nf




1-10. Money.

1-
11. When money does not hold a stable value, the financial statements can l
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ose much of their significance. To the extent that money does not remain stable
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, it loses usefulness as the standard for measuring financial transactions.
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1-12.
No. There is a problem with determining the index in order to adjust the state
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ments. The items that are included in the index must be representative. In addi
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tion, the prices of items change because of various factors, such as quality, techn
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ology, and inflation. nf nf




Yes. A reasonable adjustment to the statements can be made for inflation.
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1-13. False. An arbitrary write- n f nf nf



off of inventory cannot be justified under the conservatism concept. The conser
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vatism concept can only be applied where there are alternative measurements a
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nd each of these alternative measurements has reasonable support.
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, 1-14.
Yes, inventory that has a market value below the historical cost should be writ
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ten down in order to recognize a loss. This is done based upon the concept of
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conservatism. Losses that can be reasonably anticipated should be taken in or
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der to reflect the least favorable effect on net income of the current period.
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