Solution Manual For Intermediate Accounting, 11th Edition by David Spiceland, Mark Nelson, Wayne Thomas, Jennifer

Solution Manual For Intermediate Accounting, 11th Edition
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by David Spiceland, Mark Nelson, Wayne Thomas, Jennifer

,Chapter 1 Environment and Theoretical Structure of r r r r r r



Financial Accounting r




Question 1–1 r


Financial accounting is concerned with providing relevant financial information abor r r r r r r r r


ut various kinds of organizations to different types of external users. The primary focus of f
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inancial 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 r


Resources are efficiently allocated if they are given to enterprises that will use them t r r r r r r r r r r r r r r


o provide goods and services desired by society and not to enterprises that will waste them.
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The capital markets are the mechanism that fosters this efficient allocation of resources.
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Question 1–3 r


Two extremely important variables that must be considered in any investment decisi
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on are the expected rate of return and the uncertainty or risk of that expected return.
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Question 1–4 r


In the long run, a company will be able to provide investors and creditors with a rate of
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return only if it can generate a profit. That is, it must be able to use the resources provided t
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o it to generate cash receipts from selling a product or service that exceed the cash disburse
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ments necessary to provide that product or service.
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Question 1–5 r


The primary objective of financial accounting is to provide investors and creditors wi
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th information that will help them make investment and credit decisions.
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Question 1–6 r


Net operating cash flows are the difference between cash receipts and cash disbursem
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ents during a period of time from transactions related to providing goods and services to cu
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stomers. Net operating cash flows may not be a good indicator of future cash flows because
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, by ignoring uncompleted transactions, they may not match the accomplishments and sacr
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ifices of the period. r r r

,Question 1–7 r


GAAP (generally accepted accounting principles) are a dynamic set of both broad an
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d specific guidelines that a company should follow in measuring and reporting the inform
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ation in their financial statements and related notes. It is important that all companies follo
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w GAAP so that investors can compare financial information across companies to make th
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eir resource allocation decisions.
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Question 1–8 r


In 1934, Congress created the SEC and gave it the job of setting accounting and report
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ing standards for companies whose securities are publicly traded. The SEC has retained th
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e power, but has relied on private sector bodies to create the standards. The current private s
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ector body responsible for setting accounting standards is the FASB.
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Question 1–9 r


Auditors are independent, professional accountants who examine financial statemen
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ts to express an opinion. The opinion reflects the auditors‘ assessment of the statements' fai
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rness, which is determined by the extent to which they are prepared in compliance with GA
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AP. The auditor adds credibility to the financial statements, which increases the confidenc
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e of capital market participants relying on that information.
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, Question 1–10 r


Key provisions included in the text are:
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 Creation of the Public Company Accounting Oversight Board
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 Regulate types of non-audit audit services r r r r r


 Require lead audit partner rotation every 5 year
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 Corporate executive accountability r r


 Addresses conflicts of interest for security analysts r r r r r r


 Internal control reporting and auditor opinion about controls
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Question 1–11 r


New accounting standards, or changes in standards, can have significant differential
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effects on companies, investors and creditors, and other interest groups by causing redistri
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bution of wealth. There also is the possibility that standards could harm the economy as a
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whole by causing companies to change their behavior.
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Question 1–12 r


The FASB undertakes a series of elaborate information gathering steps before issuin
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g an accounting standard to determine consensus as to the preferred method of accounting,
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as well as to anticipate adverse economic consequences.
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Question 1–13 r


The purpose of the conceptual framework is to guide the Board in developing account
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ing standards by providing an underlying foundation and basic reasoning on which to cons
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ider merits of alternatives. The framework does not prescribe GAAP.
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