Solution Manual For Financial Statement Analysis,
13th Edition
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
, Chapters1s Introductio
nstosFinancialsReporting
QUESTIONS
1- 1. a.
ThesAICPAsissansorganizationsofsCPAssthatspriorstos1973sacceptedsthesp
rimarysresponsibilitysforsthesdevelopmentsofsgenerallysacceptedsaccountin
gsprinciples.sTheirsroleswasssubstantiallysreducedsins1973swhensthesFinan
cialsAccountingsStandardssBoardswassestablished.s Theirsroleswassfurthers
reducedswithsthesestablishmentsofsthesPublicsCompanysAccountingsOvers
ightsBoardswassestablishedsins2002.
b. ThesFinancialsAccountingsStandardssBoardsreplacedsthesAccountings
PrinciplessBoardsassthesprimarysrule-
makingsbodysforsaccountingsstandards.sItsissansindependentsorganiza
tionsandsincludessmemberssothersthanspublicsaccountants.
c. ThesSECshassthesauthoritystosdeterminesgenerallysacceptedsaccountings
principlessandstosregulatesthesaccountingsprofession.sThesSECshasselec
tedstosleavesmuchsofsthesdeterminationsofsgenerallysacceptedsaccountin
gsprinciplesstosthesprivatessector.s ThesFinancialsAccountingsStandardss
Boardshassplayedsthesmajorsrolesinsestablishingsaccountingsstandardsssi
nces1973.s Regulationsofsthesaccountingsprofessionswasssubstantiallystur
nedsoverstosthesPublicsCompanysAccountingsOversightsBoardsins2002.
1-s2.
Consistencysissobtainedsthroughsthesapplicationsofsthessamesaccountings
principlesfromsperiodstosperiod.s Aschangesinsprinciplesrequiressstatements
disclosure.
1-s3.
Thesconceptsofshistoricalscostsdeterminessthesbalancessheetsvaluationsofsland.s
Thesrealizationsconceptsrequiressthatsastransactionsneedsstosoccursforsthesprofits
tosbesrecognized.
1-s4. a.s Entity e.s Historicalscost
b. Realization f.s Historicalscost
c. Materiality g.s Disclosure
d. Conservatism
1-s5. Entitysconcept
,1-s6.
Generallysacceptedsaccountingsprinciplessdosnotsapplyswhensasfirmsdoessnots
appearstosbesasgoingsconcern.s Ifsthesdecisionsissmadesthatsthississnotsasgoings
concern,sthensthesusesofsGAAPswouldsnotsbesappropriate.
1-s7.
Withsthestimesperiodsassumption,sinaccuraciessofsaccountingsforsthesentity,ssho
rtsofsitsscompleteslifesspan,saresaccepted.sThesassumptionsissmadesthatsthesentit
yscansbesaccountedsforsreasonablysaccuratelysforsasparticularsperiodsofstime.s In
sotherswords,sthesdecisionsissmadestosacceptssomesinaccuracysbecausesofsinco
mpletesinformationsaboutsthesfuturesinsexchangesforsmorestimelysreporting.s The
sstatementssaresconsideredstosbesmeaningfulsbecausesmaterialsinaccuraciessar
esnotsacceptable.
1- 8.s s Itsisstruesthatsthesonlysaccurateswaystosaccountsforsthessuccesssorsfailuresofsansen
titysisstosaccumulatesallstransactionssfromsthesopeningsofsbusinesssuntilsthesbu
sinessseventuallysliquidates.s Butsitsissnotsnecessarysthatsthesstatementssbesco
mpletelysaccuratesinsordersforsthemstosbesmeaningful.
1- 9. a. Asyearsthatsendsswhensoperationssaresatsaslowsebbsforsthesyear.
b. ThesaccountingstimesperiodsissendedsonsDecembers31.
c. Astwelve-
monthsaccountingsperiodsthatsendssatsthesendsofsasmonthsothersthansDec
embers31.
1-10. Money.
1-
11.s s Whensmoneysdoessnotsholdsasstablesvalue,sthesfinancialsstatementsscan
slosesmuchsofstheirssignificance.s Tosthesextentsthatsmoneysdoessnotsremainsst
able,sitslosessusefulnesssassthesstandardsforsmeasuringsfinancialstransactions.
1-12.
No.s Theresissasproblemswithsdeterminingsthesindexsinsorderstosadjuststhesstate
ments.s Thesitemssthatsaresincludedsinsthesindexsmustsbesrepresentative.sInsad
dition,sthespricessofsitemsschangesbecausesofsvarioussfactors,ssuchsassquality,s
technology,sandsinflation.
Yes.sAsreasonablesadjustmentstosthesstatementsscansbesmadesforsinflation.
1-13. False.s Ansarbitraryswrite-
offsofsinventoryscannotsbesjustifiedsundersthesconservatismsconcept.s Thescons
ervatismsconceptscansonlysbesappliedswherestheresaresalternativesmeasureme
ntssandseachsofsthesesalternativesmeasurementsshassreasonablessupport.
, 1-14.
Yes,sinventorysthatshassasmarketsvaluesbelowstheshistoricalscostsshouldsbeswr
ittensdownsinsorderstosrecognizesasloss.s Thississdonesbasedsuponsthesconcept
sofsconservatism.s Lossessthatscansbesreasonablysanticipatedsshouldsbestake
nsinsorderstosreflectsthesleastsfavorableseffectsonsnetsincomesofsthescurrentspe
riod.
13th Edition
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
, Chapters1s Introductio
nstosFinancialsReporting
QUESTIONS
1- 1. a.
ThesAICPAsissansorganizationsofsCPAssthatspriorstos1973sacceptedsthesp
rimarysresponsibilitysforsthesdevelopmentsofsgenerallysacceptedsaccountin
gsprinciples.sTheirsroleswasssubstantiallysreducedsins1973swhensthesFinan
cialsAccountingsStandardssBoardswassestablished.s Theirsroleswassfurthers
reducedswithsthesestablishmentsofsthesPublicsCompanysAccountingsOvers
ightsBoardswassestablishedsins2002.
b. ThesFinancialsAccountingsStandardssBoardsreplacedsthesAccountings
PrinciplessBoardsassthesprimarysrule-
makingsbodysforsaccountingsstandards.sItsissansindependentsorganiza
tionsandsincludessmemberssothersthanspublicsaccountants.
c. ThesSECshassthesauthoritystosdeterminesgenerallysacceptedsaccountings
principlessandstosregulatesthesaccountingsprofession.sThesSECshasselec
tedstosleavesmuchsofsthesdeterminationsofsgenerallysacceptedsaccountin
gsprinciplesstosthesprivatessector.s ThesFinancialsAccountingsStandardss
Boardshassplayedsthesmajorsrolesinsestablishingsaccountingsstandardsssi
nces1973.s Regulationsofsthesaccountingsprofessionswasssubstantiallystur
nedsoverstosthesPublicsCompanysAccountingsOversightsBoardsins2002.
1-s2.
Consistencysissobtainedsthroughsthesapplicationsofsthessamesaccountings
principlesfromsperiodstosperiod.s Aschangesinsprinciplesrequiressstatements
disclosure.
1-s3.
Thesconceptsofshistoricalscostsdeterminessthesbalancessheetsvaluationsofsland.s
Thesrealizationsconceptsrequiressthatsastransactionsneedsstosoccursforsthesprofits
tosbesrecognized.
1-s4. a.s Entity e.s Historicalscost
b. Realization f.s Historicalscost
c. Materiality g.s Disclosure
d. Conservatism
1-s5. Entitysconcept
,1-s6.
Generallysacceptedsaccountingsprinciplessdosnotsapplyswhensasfirmsdoessnots
appearstosbesasgoingsconcern.s Ifsthesdecisionsissmadesthatsthississnotsasgoings
concern,sthensthesusesofsGAAPswouldsnotsbesappropriate.
1-s7.
Withsthestimesperiodsassumption,sinaccuraciessofsaccountingsforsthesentity,ssho
rtsofsitsscompleteslifesspan,saresaccepted.sThesassumptionsissmadesthatsthesentit
yscansbesaccountedsforsreasonablysaccuratelysforsasparticularsperiodsofstime.s In
sotherswords,sthesdecisionsissmadestosacceptssomesinaccuracysbecausesofsinco
mpletesinformationsaboutsthesfuturesinsexchangesforsmorestimelysreporting.s The
sstatementssaresconsideredstosbesmeaningfulsbecausesmaterialsinaccuraciessar
esnotsacceptable.
1- 8.s s Itsisstruesthatsthesonlysaccurateswaystosaccountsforsthessuccesssorsfailuresofsansen
titysisstosaccumulatesallstransactionssfromsthesopeningsofsbusinesssuntilsthesbu
sinessseventuallysliquidates.s Butsitsissnotsnecessarysthatsthesstatementssbesco
mpletelysaccuratesinsordersforsthemstosbesmeaningful.
1- 9. a. Asyearsthatsendsswhensoperationssaresatsaslowsebbsforsthesyear.
b. ThesaccountingstimesperiodsissendedsonsDecembers31.
c. Astwelve-
monthsaccountingsperiodsthatsendssatsthesendsofsasmonthsothersthansDec
embers31.
1-10. Money.
1-
11.s s Whensmoneysdoessnotsholdsasstablesvalue,sthesfinancialsstatementsscan
slosesmuchsofstheirssignificance.s Tosthesextentsthatsmoneysdoessnotsremainsst
able,sitslosessusefulnesssassthesstandardsforsmeasuringsfinancialstransactions.
1-12.
No.s Theresissasproblemswithsdeterminingsthesindexsinsorderstosadjuststhesstate
ments.s Thesitemssthatsaresincludedsinsthesindexsmustsbesrepresentative.sInsad
dition,sthespricessofsitemsschangesbecausesofsvarioussfactors,ssuchsassquality,s
technology,sandsinflation.
Yes.sAsreasonablesadjustmentstosthesstatementsscansbesmadesforsinflation.
1-13. False.s Ansarbitraryswrite-
offsofsinventoryscannotsbesjustifiedsundersthesconservatismsconcept.s Thescons
ervatismsconceptscansonlysbesappliedswherestheresaresalternativesmeasureme
ntssandseachsofsthesesalternativesmeasurementsshassreasonablessupport.
, 1-14.
Yes,sinventorysthatshassasmarketsvaluesbelowstheshistoricalscostsshouldsbeswr
ittensdownsinsorderstosrecognizesasloss.s Thississdonesbasedsuponsthesconcept
sofsconservatism.s Lossessthatscansbesreasonablysanticipatedsshouldsbestake
nsinsorderstosreflectsthesleastsfavorableseffectsonsnetsincomesofsthescurrentspe
riod.
