Solution Manual For Financial Statement Analysis,
13th Edition
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
, Chapter 1
Introduction to Financial Reporting
QUESTIONS
1- 1. a. The AICPA is an organization of CPAs that prior to 1973 accepted the
primary responsibility for the development of generally accepted
accounting principles. Their role was substantially reduced in 1973 when
the Financial Accounting Standards Board was established. Their role
was further reduced with the establishment of the Public Company
Accounting Oversight Board was established in 2002.
b. The Financial Accounting Standards Board replaced the Accounting
Principles Board as the primary rule-making body for accounting
standards. It is an independent organization and includes members
other than public accountants.
c. The SEC has the authority to determine generally accepted accounting
principles and to regulate the accounting profession. The SEC has
elected to leave much of the determination of generally accepted
accounting principles to the private sector. The Financial Accounting
Standards Board has played the major role in establishing accounting
standards since 1973. Regulation of the accounting profession was
substantially turned over to the Public Company Accounting Oversight
Board in 2002.
1- 2. Consistency is obtained through the application of the same accounting
principle from period to period. A change in principle requires statement
disclosure.
1- 3. The concept of historical cost determines the balance sheet valuation of land.
The realization concept requires that a transaction needs to occur for the profit
to be recognized.
1- 4. a. Entity e. Historical cost
b. Realization f. Historical cost
c. Materiality g. Disclosure
d. Conservatism
1- 5. Entity concept
,1- 6. Generally accepted accounting principles do not apply when a firm does not
appear to be a going concern. If the decision is made that this is not a going
concern, then the use of GAAP would not be appropriate.
1- 7. With the time period assumption, inaccuracies of accounting for the entity,
short of its complete life span, are accepted. The assumption is made that the
entity can be accounted for reasonably accurately for a particular period of
time. In other words, the decision is made to accept some inaccuracy
because of incomplete information about the future in exchange for more
timely reporting. The statements are considered to be meaningful because
material inaccuracies are not acceptable.
1- 8. It is true that the only accurate way to account for the success or failure of an
entity is to accumulate all transactions from the opening of business until the
business eventually liquidates. But it is not necessary that the statements be
completely accurate in order for them to be meaningful.
1- 9. a. A year that ends when operations are at a low ebb for the year.
b. The accounting time period is ended on December 31.
c. A twelve-month accounting period that ends at the end of a month other
than December 31.
1-10. Money.
1-11. When dmoney ddoes dnot dhold da dstable dvalue, dthe dfinancial dstatements dcan
dlose dmuch dof dtheir dsignificance. d To dthe dextent dthat dmoney ddoes dnot
dremain dstable, dit dloses dusefulness das dthe dstandard dfor dmeasuring
dfinancial dtransactions.
1-12. No. d There dis da dproblem dwith ddetermining dthe dindex din dorder dto dadjust
dthe dstatements. d The ditems dthat dare dincluded din dthe dindex dmust dbe
drepresentative. dIn daddition, dthe dprices dof ditems dchange dbecause dof
dvarious dfactors, dsuch das dquality, dtechnology, dand dinflation.
Yes. dA dreasonable dadjustment dto dthe dstatements dcan dbe dmade dfor dinflation.
1-13. False. d An darbitrary dwrite-off dof dinventory dcannot dbe djustified dunder dthe
dconservatism dconcept. d The dconservatism dconcept dcan donly dbe dapplied
dwhere dthere dare dalternative dmeasurements dand deach dof dthese
dalternative dmeasurements dhas dreasonable dsupport.
1-14. Yes, dinventory dthat dhas da dmarket dvalue dbelow dthe dhistorical dcost
dshould dbe dwritten ddown din dorder dto drecognize da dloss. d This dis ddone
dbased dupon dthe dconcept dof dconservatism. d Losses dthat dcan dbe
dreasonably danticipated dshould dbe dtaken din dorder dto dreflect dthe dleast
, dfavorable deffect don dnet dincome dof dthe dcurrent dperiod.
13th Edition
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete
, Chapter 1
Introduction to Financial Reporting
QUESTIONS
1- 1. a. The AICPA is an organization of CPAs that prior to 1973 accepted the
primary responsibility for the development of generally accepted
accounting principles. Their role was substantially reduced in 1973 when
the Financial Accounting Standards Board was established. Their role
was further reduced with the establishment of the Public Company
Accounting Oversight Board was established in 2002.
b. The Financial Accounting Standards Board replaced the Accounting
Principles Board as the primary rule-making body for accounting
standards. It is an independent organization and includes members
other than public accountants.
c. The SEC has the authority to determine generally accepted accounting
principles and to regulate the accounting profession. The SEC has
elected to leave much of the determination of generally accepted
accounting principles to the private sector. The Financial Accounting
Standards Board has played the major role in establishing accounting
standards since 1973. Regulation of the accounting profession was
substantially turned over to the Public Company Accounting Oversight
Board in 2002.
1- 2. Consistency is obtained through the application of the same accounting
principle from period to period. A change in principle requires statement
disclosure.
1- 3. The concept of historical cost determines the balance sheet valuation of land.
The realization concept requires that a transaction needs to occur for the profit
to be recognized.
1- 4. a. Entity e. Historical cost
b. Realization f. Historical cost
c. Materiality g. Disclosure
d. Conservatism
1- 5. Entity concept
,1- 6. Generally accepted accounting principles do not apply when a firm does not
appear to be a going concern. If the decision is made that this is not a going
concern, then the use of GAAP would not be appropriate.
1- 7. With the time period assumption, inaccuracies of accounting for the entity,
short of its complete life span, are accepted. The assumption is made that the
entity can be accounted for reasonably accurately for a particular period of
time. In other words, the decision is made to accept some inaccuracy
because of incomplete information about the future in exchange for more
timely reporting. The statements are considered to be meaningful because
material inaccuracies are not acceptable.
1- 8. It is true that the only accurate way to account for the success or failure of an
entity is to accumulate all transactions from the opening of business until the
business eventually liquidates. But it is not necessary that the statements be
completely accurate in order for them to be meaningful.
1- 9. a. A year that ends when operations are at a low ebb for the year.
b. The accounting time period is ended on December 31.
c. A twelve-month accounting period that ends at the end of a month other
than December 31.
1-10. Money.
1-11. When dmoney ddoes dnot dhold da dstable dvalue, dthe dfinancial dstatements dcan
dlose dmuch dof dtheir dsignificance. d To dthe dextent dthat dmoney ddoes dnot
dremain dstable, dit dloses dusefulness das dthe dstandard dfor dmeasuring
dfinancial dtransactions.
1-12. No. d There dis da dproblem dwith ddetermining dthe dindex din dorder dto dadjust
dthe dstatements. d The ditems dthat dare dincluded din dthe dindex dmust dbe
drepresentative. dIn daddition, dthe dprices dof ditems dchange dbecause dof
dvarious dfactors, dsuch das dquality, dtechnology, dand dinflation.
Yes. dA dreasonable dadjustment dto dthe dstatements dcan dbe dmade dfor dinflation.
1-13. False. d An darbitrary dwrite-off dof dinventory dcannot dbe djustified dunder dthe
dconservatism dconcept. d The dconservatism dconcept dcan donly dbe dapplied
dwhere dthere dare dalternative dmeasurements dand deach dof dthese
dalternative dmeasurements dhas dreasonable dsupport.
1-14. Yes, dinventory dthat dhas da dmarket dvalue dbelow dthe dhistorical dcost
dshould dbe dwritten ddown din dorder dto drecognize da dloss. d This dis ddone
dbased dupon dthe dconcept dof dconservatism. d Losses dthat dcan dbe
dreasonably danticipated dshould dbe dtaken din dorder dto dreflect dthe dleast
, dfavorable deffect don dnet dincome dof dthe dcurrent dperiod.
