SolutionpoManualpoForpoFinancialpoStatementpoAnalysis,
13th Edition
po
BypoCharlespoH.poGibson,poVerifiedpoChapter'spo1po-po13po|poComplete
, Chapter 1 Introduct
ion to Financial Reporting
QUESTIONS
1- 1. a.
The AICPA is an organization of CPAs that prior to 1973 ac
cepted the primary responsibility for the development of generall
y accepted accounting principles. Their role was substantially re
duced in 1973 when the Financial Accounting Standards Board
was established. Their role was further reduced with the esta
blishment of the Public Company Accounting Oversight Board w
as established in 2002.
b. The Financial Accounting Standards Board replaced the Acc
ounting Principles Board as the primary rule-
making body for accounting standards. It is an independent
organization and includes members other than public acco
untants.
c. The SEC has the authority to determine generally accepted a
ccounting 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. R
egulation of the accounting profession was substantially turned
over to the Public Company Accounting Oversight Board in 2
002.
1- 2.
Consistency is obtained through the application of the same a
ccounting principle from period to period. A change in principl
e requires statement disclosure.
1- 3.
The concept of historical cost determines the balance sheet valuatio
n 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 mad
e 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 assumptio
n is made that the entity can be accounted for reasonably accurat
ely for a particular period of time. In other words, the decision is
made to accept some inaccuracy because of incomplete informatio
n about the future in exchange for more timely reporting. The stat
ements are considered to be meaningful because material inaccuraci
es are not acceptable.
1- 8. It is true that the only accurate way to account for the succes
s or failure of an entity is to accumulate all transactions from the
opening of business until the business eventually liquidates. But i
t is not necessary that the statements be completely accurate in o
rder 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 oth
er than December 31.
1-10. Money.
1-
11. When money does not hold a stable value, the financial
statements can lose much of their significance. To the extent that
money does not remain stable, it loses usefulness as the standa
rd for measuring financial transactions.
1-12.
No. There is a problem with determining the index in order to a
djust the statements. The items that are included in the index mu
st be representative. In addition, the prices of items change becau
se of various factors, such as quality, technology, and inflation.
Yes. A reasonable adjustment to the statements can be made for inflation.
1-13. False. An arbitrary write-
13th Edition
po
BypoCharlespoH.poGibson,poVerifiedpoChapter'spo1po-po13po|poComplete
, Chapter 1 Introduct
ion to Financial Reporting
QUESTIONS
1- 1. a.
The AICPA is an organization of CPAs that prior to 1973 ac
cepted the primary responsibility for the development of generall
y accepted accounting principles. Their role was substantially re
duced in 1973 when the Financial Accounting Standards Board
was established. Their role was further reduced with the esta
blishment of the Public Company Accounting Oversight Board w
as established in 2002.
b. The Financial Accounting Standards Board replaced the Acc
ounting Principles Board as the primary rule-
making body for accounting standards. It is an independent
organization and includes members other than public acco
untants.
c. The SEC has the authority to determine generally accepted a
ccounting 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. R
egulation of the accounting profession was substantially turned
over to the Public Company Accounting Oversight Board in 2
002.
1- 2.
Consistency is obtained through the application of the same a
ccounting principle from period to period. A change in principl
e requires statement disclosure.
1- 3.
The concept of historical cost determines the balance sheet valuatio
n 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 mad
e 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 assumptio
n is made that the entity can be accounted for reasonably accurat
ely for a particular period of time. In other words, the decision is
made to accept some inaccuracy because of incomplete informatio
n about the future in exchange for more timely reporting. The stat
ements are considered to be meaningful because material inaccuraci
es are not acceptable.
1- 8. It is true that the only accurate way to account for the succes
s or failure of an entity is to accumulate all transactions from the
opening of business until the business eventually liquidates. But i
t is not necessary that the statements be completely accurate in o
rder 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 oth
er than December 31.
1-10. Money.
1-
11. When money does not hold a stable value, the financial
statements can lose much of their significance. To the extent that
money does not remain stable, it loses usefulness as the standa
rd for measuring financial transactions.
1-12.
No. There is a problem with determining the index in order to a
djust the statements. The items that are included in the index mu
st be representative. In addition, the prices of items change becau
se of various factors, such as quality, technology, and inflation.
Yes. A reasonable adjustment to the statements can be made for inflation.
1-13. False. An arbitrary write-
