Solution Manual for Financial Statement Analysis, 13th Edition by Charles H. Gibson | Complete Answers & Explanations (Updated 2025/2026)

Solution Manual For Financial Statement Analysis,
13th Edition
By Charles H. Gibson, Verified Chapter's 1 - 13 | Complete

, Chapter 1 D


D Introduction to Financial D D


D Reporting


QUESTIONS

1- 1. a. The AICPA is an organization of CPAs that prior to 1973 accepted the
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primary responsibility for the development of generally accepted
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accounting principles. Their role was substantially reduced in 1973
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when the Financial Accounting Standards Board was established.
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DTheir role was further reduced with the establishment of the Public
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Company Accounting Oversight Board was established in 2002.
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b. The Financial Accounting Standards Board replaced the
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Accounting Principles Board as the primary rule-making body for
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accounting standards. It is an independent organization and
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includes members other than public accountants.
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c. The SEC has the authority to determine generally accepted
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accounting principles and to regulate the accounting profession. The
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SEC has elected to leave much of the determination of generally
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accepted accounting principles to the private sector. The Financial
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Accounting Standards Board has played the major role in
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establishing accounting standards since 1973. Regulation of the
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accounting profession was substantially turned over to the Public
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Company Accounting Oversight Board in 2002.
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1- 2.
D Consistency is obtained through the application of the same
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accounting principle from period to period. A change in principle
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requires statement disclosure.
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1- 3.
D The concept of historical cost determines the balance sheet valuation of
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land. The realization concept requires that a transaction needs to occur for
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the profit to be recognized.
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1- 4.
D a. Entity
D e. Historical cost
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b. Realization f. Historical cost
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c. Materiality g. Disclosure D




d. Conservatism

1- 5.
D Entity concept
D

,1- 6.
D Generally accepted accounting principles do not apply when a firm does
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not appear to be a going concern. If the decision is made that this is not a
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going concern, then the use of GAAP would not be appropriate.
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1- 7.
D With the time period assumption, inaccuracies of accounting for the entity,
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short of its complete life span, are accepted. The assumption is made that
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the entity can be accounted for reasonably accurately for a particular period
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of time. In other words, the decision is made to accept some inaccuracy
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because of incomplete information about the future in exchange for more
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timely reporting. The statements are considered to be meaningful because
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material inaccuracies are not acceptable.
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1- 8. D D It is true that the only accurate way to account for the success or failure of
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an entity is to accumulate all transactions from the opening of business
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until the business eventually liquidates. But it is not necessary that the
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statements be completely accurate in order for them to be meaningful.
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1- 9. a. A year that ends when operations are at a low ebb for the year.
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b. The accounting time period is ended on December 31.
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c. A twelve-month accounting period that ends at the end of a month
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other than December 31.
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1-10. Money.

1-11. D D When money does not hold a stable value, the financial statements can
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D lose much of their significance. To the extent that money does not remain
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D stable, it loses usefulness as the standard for measuring financial
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D transactions.

1-12. No. There is a problem with determining the index in order to adjust the
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statements. The items that are included in the index must be
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representative. In addition, the prices of items change because of various
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factors, such as quality, technology, and inflation.
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Yes. A reasonable adjustment to the statements can be made for inflation.
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1-13. False. An arbitrary write-off of inventory cannot be justified under the
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conservatism concept. The conservatism concept can only be applied
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where there are alternative measurements and each of these alternative
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measurements has reasonable support.
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1-14. Yes, inventory that has a market value below the historical cost should be
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written down in order to recognize a loss. This is done based upon the
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concept of conservatism. Losses that can be reasonably anticipated
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should be taken in order to reflect the least favorable effect on net income
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, D of the current period.
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