Solution Manual For Intermediate Accounting 3rd Edition by Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

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The Financial Reporting Environment Solutio
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Questions

Q1-
1zFinancialzinformationziszazmuchzbroaderzconceptzthanzsimplyzthezfinancialzstatementszandzfootnot
esztozthezfinancialzstatements.zFinancialzinformationzincludeszitemszsuchzaszthezPresident‘szletterztozt
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zpresszreleases.zOfzcourse,zthezbasiczfinancialzstatementszandzfootnoteszarezincludedzinztheztermzfina

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mentzofzfinancialzposition),zthezstatementzofzcomprehensivezincomez(alsozreferredztozaszthezstateme
ntzofznetzincomezandzthezstatementzofzcomprehensivezincome),zthezstatementzofzcashzflows,zandzthez
statementzofzshareholders‘zequity.zFinancialzinformationzisznotzsynonymouszwithztheztermzfinancial
zstatementszbecausezthezfinancialzstatementszarezazsubsetzofzthezdifferentztypeszofzfinancialzinformat

ionzprovided.

Q1-
2zThezpurposezofzgeneratingzfinancialzstatementszisztozprovidezusefulzinformationztozusersztozevaluat
ezeconomiczentitieszandzmakezefficientzresourcezallocationzdecisionszbasedzonzthezriskszandzreturnsz
ofzazparticularzinvestment.zThezFinancialzAccountingzStandardszBoardz(FASB)zidentifieszinvestors
,zlenderszandzotherzcreditorszaszthezprimaryzuserszofzthezfinancialzstatements.zThezfinancialzstateme
ntszarezthezculminationzofzthezfinancialzreportingzprocess.

Q1-
3zCapitalziszazscarcezresource.zInvestorszandzcreditorszhaveztozmakezdecisionszasztozhowzmuchzcapita
lztozinvestzinzanyzgivenzentity;ztherefore,ztheyzdemandzrelevantzandzfaithfullyzrepresentativezinforma
tionzaboutzthezeconomiczperformancezandzfinancialzpositionzofzazcompany.zThiszinformationziszprov
idedzinzthezfinancialzstatements.

Q1-
4zExternalzauditorszensurezthatzthezmanagementzofzazcompanyzhaszpreparedzfinancialzstatementszinz
accordancezwithzGenerallyzAcceptedzAccountingzPrincipleszandzfairlyzpresentzthezfinancialzpositio
nzandzeconomiczperformancezofzazcompany.zInzaddition,zexternalzauditorszmustzbezanzindependentz
partyzandzcannotzbezemployeeszofzthezcompanyztheyzarezauditing.zExternalzauditorszprovidezazsigni
ficantzamountzofzcredibilityztozthezfinancialzstatements.

Q1-
5zDatazanalyticsziszthezprocesszofzanalyzingzlargezdatazsetszinzorderztozdrawzusefulzconclusions.zItzin
volveszconvertingzrawzdatazintozusefulzknowledge.zInzfinancialzreporting,zdatazanalyticszcanzbezuse
dztozimprovezthezqualityzofzestimateszandzvaluations.

Q1-
6zStandardzsetterszcreatezaccountingzconcepts,zrules,zandzguidelinesztozensurezthatzfinancialzstateme
ntszaccuratelyzpresentzthezeconomiczperformancezandzfinancialzpositionzofzazfirm.zThezstandardszen
courageztransparentzandztruthfulzreporting.

,
, 1-2 S O L U T I O N S M A N U A L F O R I N T E R M E D I A T E A C C O U N T ING



Q1-
7zU.S.zcompanieszlistedzonzU.S.zstockzexchangeszdoznotzhavezthezoptionztozreportzunderzIFRS.zHow
ever,zforeignzcompanieszthatztradezinzthezU.S.zexchangeszcanzreportzunderzIFRS.zThezSECzpermitszt
hezusezofzIFRS-
basedzfinancialzstatementszbyzinternationalzcompanieszwithzsharesztradingzonzU.S.zstockzexchanges
.

Q1-
8zThezFASBzseekszandzwelcomeszcommentszfromzallzpartieszinzthezfinancialzreportingzprocesszincl
udingzmanagers,zinvestors,zaccountants,zpreparers,zcreditors,zlenders,zfinancialzstatementzusers,zgo
vernmentalzagencies,zfinancialzanalysts,zindustryzgroups,zandzauditors.zFASBzalsozreceiveszfeedbac
kzfromzpubliczroundtablezdiscussions,zpubliczmeetings,zthezFASAC,zthezPrivatezCompanyzCouncil,
zandzEITF.



Q1-
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roupszthatzinfluencezthezstandardzsettingzprocess.zThezstandardzsettingzprocessziszazpoliticalzprocessz
thatziszaffectedzbyzthezimpactzofzseveralzlobbyingzgroups.zThezgovernment,zthroughzthezSEC,zinflue
nceszaccountingzstandards.zThezSECzhaszthezauthorityztozissuezaccountingzstandardszbutzhaszassigne
dzthiszresponsibilityztozthezprivatezsector.zNonetheless,zthezSECzcanzexertzpressurezonzthezFASBztozi
ssuezaccountingzstandardszandzvetozthezstandardszpromulgatedzbyzthezFASB.zAuditingzfirms,zthezco
rporatezsector,zcreditors,zfinancialzanalysts,zthezfinancialzcommunity,zaccountingzorganizations,zin
dustryzgroups,zandzinvestorszcanzinfluencezthezFASBzbyzwrittenzcommentszaboutzExposurezDraftsza
ndzparticipationzinzpubliczmeetingszandzpubliczroundtableszregardingzazproposedzfinancialzreportin
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Q1-10zAzprinciples-
basedzstandardziszconsistentzwithzaztheoreticalzframework.zInzcontrast,zazrules-
basedzstandardzdoesznotznecessarilyzrelyzonzazconsistentztheoreticalzframework.zRather,zitzcontain
szmorezspecificzandzprescriptivezrules.

Q1-
11zRecently,zthezFASBzhasztakenzanzasset/liabilityzapproachzinzsettingzstandards.zWithzthiszapproac
h,zaztransactionziszrecordedzbasedzonzwhetherzanzassetzorzliabilityziszcreated.zAnotherztrendzhaszbeen
zthezmovementztowardzthezusezofzfairzvaluezmeasurementszaszanzalternativeztozhistoricalzcost.zFASB

zhaszalsozfocusedzonzthezpromulgationzofzprinciples-basedzstandardszinsteadzofzrules-

basedzstandards.

BriefzExerciseszSoluti

onztozBE1-1

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purposezfinancialzstatementszprovidezgeneralzfinancialzinformationzaboutzanzentityzthatzwillzbezusef
ulztozmanyztypeszofzusers.zGeneral-
purposezfinancialzstatementszprovidezinformationztozazwidezspectrumzofzuserzgroups:zinvestors,zcred
itors,zfinancialzanalysts,zcustomers,zemployees,zcompetitors,zsuppliers,zunions,zandzgovernmentzag
encies.zMostzfinancialzinformationzinzgeneralzpurposezfinancialzstatementsziszprovidedztozsatisfyzuse
rszwithzlimitedzabilityzorzauthorityztozobtainzadditionalzinformation,zwhichzincludeszinvestorszandzcr
editors.zThezFinancialzAccountingzStandardszBoardz(FASB)zidentifieszinvestors,zlenders,zandzother
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