Solution Manual for Financial and Managerial Accounting for Decision Makers, 4th Edition by Michelle Hanlon, 9781618533616, Covering Chapters 1-24

INSTRUCTOR’S SOLUTIONS MANUAL H H




for



FinancialAccounting h h




Theory
Seventh Edition h




William R. Scott h h


University of Waterloo
h h




Toronto

Copyrighth©h2015hPearsonhCanadahInc.,hToronto,hOntario.hAllhrightshreserved.hThishworkhishprotectedhbyhCanadianhcopyr
ighthlawshandhishprovidedhsolelyhforhthehusehofhinstructorshinhteachinghtheirhcourseshandhassessinghstudenthlearning.hDisse
minationhorhsalehofhanyhparthofhthishworkh(includinghonhthehInternet)hwillhdestroyhthehintegrityhofhthehworkhandhishnothper
mitted.hThehcopyrighthholderhgrantshpermissionhtohinstructorshwhohhavehadoptedhFinancialhAccountinghTheory,hSeventhhE
dition,hbyhWilliamhR.hScotthtohposththishmaterialhonlinehonlyhifhthehusehofhthehwebsitehishrestrictedhbyhaccesshcodeshtohstud
entshinhthehinstructor’shclasshthathishusinghthehtextbookhandhprovidedhthehreproducedhmaterialhbearshthishcopyrighthnotice.

, Contents


Chapterh1 Introduction .................................................................................................. 1

Chapterh2 AccountinghUnderhIdealhConditions ........................................................... 7

Chapterh3 ThehDecisionhUsefulnesshApproachhtohFinancialhReporting ....................... 68

Chapterh4 EfficienthSecuritieshMarkets ....................................................................... 129

Chapterh5 ThehValuehRelevancehofhAccountingh Information ...................................... 153

Chapterh6 ThehMeasurementhApproachhtohDecisionhUsefulness ................................. 194

Chapterh7 MeasurementhApplications ......................................................................... 237

Chapterh8 ThehEfficienthContractinghApproachhtohDecisionhUsefulness ..................... 285

Chapterh9 AnhAnalysishofhConflict ............................................................................ 321

Chapterh10h ExecutivehCompensation .......................................................................... 371

Chapterh11h EarningshManagement .............................................................................. 425

Chapterh12h StandardhSetting:hEconomichIssues ........................................................... 487

Chapterh13h StandardhSetting:hPoliticalhIssues .............................................................. 527




Copyrighth©h2015hPearsonhCanadahInc.

,Scott,hFinancialhAccountinghTheory,h7thhEdition Instructor’shSolutionshManualhChapterh1



CHAPTER 1 INTROD
H H




UCTION

1.1 ThehObjectivehofhThishBook

1.2 Someh HistoricalhPerspective

1.3 Theh2007-2008hMarkethMeltdowns

1.4 EfficienthContracting

1.5 AhNotehonhEthicalhBehaviour

1.6 Rules-Basedh v.h Principles-Basedh Accountingh Standards

1.7 ThehComplexityhofhInformationhinhFinancialhAccountinghandhReporting

1.8 ThehRolehofhAccountinghResearch

1.9 ThehImportancehofhInformationhAsymmetry

1.10 ThehFundamentalhProblemhofhFinancialhAccountinghTheory

1.11 RegulationhashahReactionhtohthehFundamentalhProblem

1.12 ThehOrganizationhofhThishBook

1.12.1 IdealhConditions

1.12.2 Adverseh Selection

1.12.3 MoralhHazard

1.12.4 StandardhSetting

1.12.5 ThehProcesshofh StandardhSetting

1.13 RelevancehofhFinancialhAccountinghTheoryhtohAccountinghPractice




1
Copyrighth©h2015hPearsonhCanadahInc.

, Scott,hFinancialhAccountinghTheory,h7thhEdition Instructor’shSolutionshManualhChapterh1


LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
H H H H H




1. ThehBroadhOutlinehofhthehBook

IhusehFigureh1.1hashahtemplatehtohdescribehthehbroadhoutlinehofhthehbook.hSincehthehs
tudentshtypicallyhhavehnothhadhahchancehtohreadhChapterh1hinhthehfirsthcoursehsession,
I stickhfairlyhcloselyhtohthehchapterhmaterial.
h h




ThehmajorhpointshIhdiscusshare:

• Accountinghinhanhidealhsetting.hHere,hpresent-value-
basedhaccountinghishnatural.hIhgohoverhthehidealhconditionshneededhforhs
uchhahbasishofhaccountinghtohbehfeasible,hbuthdohnothgohintohmuchhdetai
lhbecausehthishtopichishcoveredhinhgreaterhdepthhinhChapterh2.

• Anhintroductionhtohthehconcepthofhinformationhasymmetryhandhresultin
ghproblemshofhadversehselectionhandhmoralhhazard.hThesehproblemsh
arehbasichtohthehbookhandhIhfeelhithishdesirablehforhthehstudentshtohhavehah
“firsthgo”haththemhaththishpoint.hIhconcentratehonhthehintuitionhunderlyingh
thehtwohproblems.hForhexample,hadversehselectionhcanhbehillustratedh
byhaskinghwhohwouldhbehfirsthinhlinehtohpurchasehlifehinsurancehifhthereh
washnohmedicalhexamination,horhwhathqualityhofhusedhcarsharehlikelyhtoh
behbroughthtohmarket.hForhmoralhhazardhIhtryhtohpinhthemhdownhonhhow
hardhtheyhwouldhworkhinhthishcoursehifhtherehwerehnohexams.

• Thehenvironmenthinhwhichhfinancialhaccountinghandhreportinghoperat
es.hMyhmainhgoalhaththishpointhishthaththehstudentshdohnothtakehthishenvir
onmenthforhgranted.hIhdiscusshthehprocedureshofhstandardhsettinghbrie
flyhandhpointhouththaththishishreallyhahprocesshofhregulation.hInhthehpast,ht
herehhavehbeenhwell-
knownhcaseshofhderegulation,hsuchhashairlines,htrucking,hfinancialhinsti
tutions,hpowerhgeneration.hHowever,hweharehenteringhwhathishlikelyht
ohbehahperiodhofhincreasinghregulation,hathleasthforhfinancialhinstitutions
.hInstructors

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Copyrighth©h2015hPearsonhCanadahInc.