Solution Manual For Intermediate Accounting, 11th Edition by
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David Spiceland, Mark Nelson, Wayne Thomas, Jennifer
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,Chapter 1 Environment and Theoretical Structure of ci ci ci ci ci ci
Financial Accounting ci
Question 1–1 ci
Financial accounting is concerned with providing relevant financial information ab ci ci ci ci ci ci ci ci ci
out various kinds of organizations to different types of external users. The primary focu
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s of financial accounting is on the financial information provided by profit-
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oriented companies to their present and potential investors and creditors.
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Question 1–2 ci
Resources are efficiently allocated if they are given to enterprises that will use the ci ci ci ci ci ci ci ci ci ci ci ci ci
m to provide goods and services desired by society and not to enterprises that will waste
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them. The capital markets are the mechanism that fosters this efficient allocation of res
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ources.
Question 1–3 ci
Two extremely important variables that must be considered in any investment deci
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sion are the expected rate of return and the uncertainty or risk of that expected return.
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Question 1–4 ci
In the long run, a company will be able to provide investors and creditors with a rat
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e of return only if it can generate a profit. That is, it must be able to use the resources pr
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ovided to it to generate cash receipts from selling a product or service that exceed the ca
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sh disbursements necessary to provide that product or service.
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Question 1–5 ci
The primary objective of financial accounting is to provide investors and creditors
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with information that will help them make investment and credit decisions.
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Question 1–6 ci
Net operating cash flows are the difference between cash receipts and cash disburs
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ements during a period of time from transactions related to providing goods and servic
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es to customers. Net operating cash flows may not be a good indicator of future cash flo
ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci
ws because, by ignoring uncompleted transactions, they may not match the accomplish
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ments and sacrifices of the period. ci ci ci ci ci
,Question 1–7 ci
GAAP (generally accepted accounting principles) are a dynamic set of both broad
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and specific guidelines that a company should follow in measuring and reporting the in
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formation in their financial statements and related notes. It is important that all compa
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nies follow GAAP so that investors can compare financial information across companie
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s to make their resource allocation decisions.
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Question 1–8 ci
In 1934, Congress created the SEC and gave it the job of setting accounting and re
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porting standards for companies whose securities are publicly traded. The SEC has retai
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ned the power, but has relied on private sector bodies to create the standards. The curren
ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci
t private sector body responsible for setting accounting standards is the FASB.
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Question 1–9 ci
Auditors are independent, professional accountants who examine financial stateme
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nts to express an opinion. The opinion reflects the auditors‗ assessment of the statement
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s' fairness, which is determined by the extent to which they are prepared in compliance
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with GAAP. The auditor adds credibility to the financial statements, which increases th
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e confidence of capital market participants relying on that information.
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, Question 1–10 ci
Key provisions included in the text are:
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Creation of the Public Company Accounting Oversight Board ci ci ci ci ci ci ci
Regulate types of non-audit audit services ci ci ci ci ci
Require lead audit partner rotation every 5 year ci ci ci ci ci ci ci
Corporate executive accountability ci ci
Addresses conflicts of interest for security analysts ci ci ci ci ci ci
Internal control reporting and auditor opinion about controls
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Question 1–11 ci
New accounting standards, or changes in standards, can have significant differenti
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al effects on companies, investors and creditors, and other interest groups by causing re
ci ci ci ci ci ci ci ci ci ci ci ci ci
distribution of wealth. There also is the possibility that standards could harm the econo
ci ci c i ci ci ci ci ci ci ci ci ci ci
my as a whole by causing companies to change their behavior.
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Question 1–12 ci
The FASB undertakes a series of elaborate information gathering steps before issu
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ing an accounting standard to determine consensus as to the preferred method of accoun
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ting, as well as to anticipate adverse economic consequences.
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Question 1–13 ci
The purpose of the conceptual framework is to guide the Board in developing acco
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unting standards by providing an underlying foundation and basic reasoning on which t
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o consider merits of alternatives. The framework does not prescribe GAAP.
ci ci ci ci c i ci ci ci ci ci
ci ci ci ci ci ci cici ci
David Spiceland, Mark Nelson, Wayne Thomas, Jennifer
ci ci ci ci ci ci
,Chapter 1 Environment and Theoretical Structure of ci ci ci ci ci ci
Financial Accounting ci
Question 1–1 ci
Financial accounting is concerned with providing relevant financial information ab ci ci ci ci ci ci ci ci ci
out various kinds of organizations to different types of external users. The primary focu
ci ci ci ci ci ci ci ci ci ci ci ci ci
s of financial accounting is on the financial information provided by profit-
ci ci ci ci ci ci ci ci ci ci ci
oriented companies to their present and potential investors and creditors.
ci ci ci ci ci ci ci ci ci ci
Question 1–2 ci
Resources are efficiently allocated if they are given to enterprises that will use the ci ci ci ci ci ci ci ci ci ci ci ci ci
m to provide goods and services desired by society and not to enterprises that will waste
ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci
them. The capital markets are the mechanism that fosters this efficient allocation of res
ci ci ci ci ci ci ci ci ci ci c i ci ci ci
ources.
Question 1–3 ci
Two extremely important variables that must be considered in any investment deci
ci ci ci ci ci ci ci ci ci ci ci
sion are the expected rate of return and the uncertainty or risk of that expected return.
ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci
Question 1–4 ci
In the long run, a company will be able to provide investors and creditors with a rat
ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci
e of return only if it can generate a profit. That is, it must be able to use the resources pr
ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci
ovided to it to generate cash receipts from selling a product or service that exceed the ca
ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci
sh disbursements necessary to provide that product or service.
ci ci ci ci ci ci ci ci
Question 1–5 ci
The primary objective of financial accounting is to provide investors and creditors
ci ci ci ci ci ci ci ci ci c i ci
with information that will help them make investment and credit decisions.
ci ci ci ci ci ci ci ci ci ci ci
Question 1–6 ci
Net operating cash flows are the difference between cash receipts and cash disburs
ci ci ci ci ci ci ci ci ci ci ci ci
ements during a period of time from transactions related to providing goods and servic
ci ci ci ci ci ci ci c i ci ci ci ci ci
es to customers. Net operating cash flows may not be a good indicator of future cash flo
ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci
ws because, by ignoring uncompleted transactions, they may not match the accomplish
ci ci ci ci ci ci ci ci ci ci ci
ments and sacrifices of the period. ci ci ci ci ci
,Question 1–7 ci
GAAP (generally accepted accounting principles) are a dynamic set of both broad
ci ci ci ci ci ci ci ci c i ci ci c
and specific guidelines that a company should follow in measuring and reporting the in
i ci ci ci ci ci ci ci ci ci c i ci ci ci
formation in their financial statements and related notes. It is important that all compa
ci ci ci ci ci ci ci c i c i ci ci ci ci
nies follow GAAP so that investors can compare financial information across companie
ci ci ci ci ci ci ci ci ci ci ci
s to make their resource allocation decisions.
ci ci ci ci ci ci
Question 1–8 ci
In 1934, Congress created the SEC and gave it the job of setting accounting and re
ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci
porting standards for companies whose securities are publicly traded. The SEC has retai
ci ci ci ci ci ci ci ci ci ci ci ci
ned the power, but has relied on private sector bodies to create the standards. The curren
ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci
t private sector body responsible for setting accounting standards is the FASB.
ci ci ci ci ci ci ci ci ci ci ci
Question 1–9 ci
Auditors are independent, professional accountants who examine financial stateme
ci ci ci ci ci ci ci ci
nts to express an opinion. The opinion reflects the auditors‗ assessment of the statement
ci ci ci ci ci ci ci ci ci ci ci ci ci
s' fairness, which is determined by the extent to which they are prepared in compliance
ci ci ci ci ci ci ci ci ci ci ci ci ci ci ci
with GAAP. The auditor adds credibility to the financial statements, which increases th
ci c i ci ci ci ci ci ci ci ci ci ci
e confidence of capital market participants relying on that information.
ci ci ci ci ci ci ci ci ci
, Question 1–10 ci
Key provisions included in the text are:
ci ci ci ci ci ci
Creation of the Public Company Accounting Oversight Board ci ci ci ci ci ci ci
Regulate types of non-audit audit services ci ci ci ci ci
Require lead audit partner rotation every 5 year ci ci ci ci ci ci ci
Corporate executive accountability ci ci
Addresses conflicts of interest for security analysts ci ci ci ci ci ci
Internal control reporting and auditor opinion about controls
ci ci ci ci ci ci ci
Question 1–11 ci
New accounting standards, or changes in standards, can have significant differenti
ci ci ci ci ci ci ci ci ci ci
al effects on companies, investors and creditors, and other interest groups by causing re
ci ci ci ci ci ci ci ci ci ci ci ci ci
distribution of wealth. There also is the possibility that standards could harm the econo
ci ci c i ci ci ci ci ci ci ci ci ci ci
my as a whole by causing companies to change their behavior.
ci ci ci ci ci ci ci ci ci ci
Question 1–12 ci
The FASB undertakes a series of elaborate information gathering steps before issu
ci ci ci ci ci ci ci ci ci ci ci
ing an accounting standard to determine consensus as to the preferred method of accoun
ci ci ci ci ci ci ci ci ci ci ci ci ci
ting, as well as to anticipate adverse economic consequences.
ci ci ci ci ci ci ci ci
Question 1–13 ci
The purpose of the conceptual framework is to guide the Board in developing acco
ci ci ci ci ci ci ci ci ci ci ci ci ci
unting standards by providing an underlying foundation and basic reasoning on which t
ci ci ci ci ci ci ci ci ci ci ci ci
o consider merits of alternatives. The framework does not prescribe GAAP.
ci ci ci ci c i ci ci ci ci ci
