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Solution manual for intermediate accounting 3rd edition elizabeth a gordon jana s raedy alexander j sannella_compressed $12.49   Add to cart

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Solution manual for intermediate accounting 3rd edition elizabeth a gordon jana s raedy alexander j sannella_compressed

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  • Intermediate Accounting

Solution manual for intermediate accounting 3rd edition elizabeth a gordon jana s raedy alexander j sannella_compressedSolution manual for intermediate accounting 3rd edition elizabeth a gordon jana s raedy alexander j sannella_compressedSolution manual for intermediate accounting 3rd edition eliza...

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  • November 7, 2024
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  • Intermediate Accounting
  • Intermediate Accounting
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STUVATE
CHAPTER 1 IIll




The Financial Reporting Environment IIll IIll IIll




IIll Solutions
Questions

Q1-1 Financial information is a much broader concept than simply the financial statements
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and footnotes to the financial statements. Financial information includes items such as the
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President‘s letter to the owners, management‘s discussion and analysis, the auditors‘ report,
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the management report and press releases. Of course, the basic financial statements and
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footnotes are included in the term financial information. The basic financial statements are:
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the balance sheet (also referred to as the statement of financial position), the statement of
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comprehensive income (also referred to as the statement of net income and the statement of
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comprehensive income), the statement of cash flows, and the statement of shareholders‘
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equity. Financial information is not synonymous with the term financial statements because
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the financial statements are a subset of the different types of financial information provided.
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Q1-2 The purpose of generating financial statements is to provide useful information to users
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to evaluate economic entities and make efficient resource allocation decisions based on the
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risks and returns of a particular investment. The Financial Accounting Standards Board
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(FASB) identifies investors, lenders and other creditors as the primary users of the financial
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statements. The financial statements are the culmination of the financial reporting process.
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Q1-3 Capital is a scarce resource. Investors and creditors have to make decisions as to how
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much capital to invest in any given entity; therefore, they demand relevant and faithfully
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representative information about the economic performance and financial position of a
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company. This information is provided in the financial statements.
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Q1-4 External auditors ensure that the management of a company has prepared financial
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statements in accordance with Generally Accepted Accounting Principles and fairly present the
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financial position and economic performance of a company. In addition, external auditors
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must be an independent party and cannot be employees of the company they are auditing.
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External auditors provide a significant amount of credibility to the financial statements.
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Q1-5 Data analytics is the process of analyzing large data sets in order to draw useful
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conclusions. It involves converting raw data into useful knowledge. In financial reporting, data
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analytics can be used to improve the quality of estimates and valuations.
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Q1-6 Standard setters create accounting concepts, rules, and guidelines to ensure that financial
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statements accurately present the economic performance and financial position of a firm.
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The standards encourage transparent and truthful reporting.
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,1 -2 IIll IIll S O L UT I O N S
Il M AN UAL
IIll IIll Il IIll IIll IIll IIll I I l l IIll IIll IIll IIll IIll I I l l FO R IIl IIll I I l l IN T ER M ED IA T E
IIll IIll IIll IIll IIll IIll IIll IIll IIll IIll IIll
I I l l
I I A C C O U N T ING
l l IIll IIll IIll IIll IIll IIll IIll II ll




Q1-7 U.S. companies listed on U.S. stock exchanges do not have the option to report under
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IFRS. However, foreign companies that trade in the U.S. exchanges can report under IFRS.
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The SEC permits the use of IFRS-based financial statements by international companies with
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shares trading on U.S. stock exchanges.
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Q1-8 The FASB seeks and welcomes comments from all parties in the financial reporting
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process including managers, investors, accountants, preparers, creditors, lenders, financial
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statement users, governmental agencies, financial analysts, industry groups, and auditors.
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FASB also receives feedback from public roundtable discussions, public meetings, the
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FASAC, the Private Company Council, and EITF.
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Q1-9 Yes, the promulgation of financial accounting standards is a political process. There
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are several groups that influence the standard setting process. The standard setting process
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is a political process that is affected by the impact of several lobbying groups. The
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government, through the SEC, influences accounting standards. The SEC has the authority to
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issue accounting standards but has assigned this responsibility to the private sector.
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Nonetheless, the SEC can exert pressure on the FASB to issue accounting standards and
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veto the standards promulgated by the FASB. Auditing firms, the corporate sector, creditors,
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financial analysts, the financial community, accounting organizations, industry groups, and
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investors can influence the FASB by written comments about Exposure Drafts and
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participation in public meetings and public roundtables regarding a proposed financial
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reporting standard.
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Q1-10 A principles-based standard is consistent with a theoretical framework. In contrast,
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a rules-based standard does not necessarily rely on a consistent theoretical framework.
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Rather, it contains more specific and prescriptive rules.
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Q1-11 Recently, the FASB has taken an asset/liability approach in setting standards. With
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this approach, a transaction is recorded based on whether an asset or liability is created.
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Another trend has been the movement toward the use of fair value measurements as an
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alternative to historical cost. FASB has also focused on the promulgation of principles-based
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standards instead of rules-based standards.
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Brief Exercises IIll




IIll Solution to BE1-1 IIl IIl




General-purpose financial statements provide general financial information about an entity IIll IIll IIll IIll IIll IIll IIll IIll IIll



that will be useful to many types of users. General-purpose financial statements provide
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information to a wide spectrum of user groups: investors, creditors, financial analysts,
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customers, employees, competitors, suppliers, unions, and government agencies. Most
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financial information in general purpose financial statements is provided to satisfy users with
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limited ability or authority to obtain additional information, which includes investors and
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creditors. The Financial Accounting Standards Board (FASB) identifies investors, lenders,
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and other creditors as the primary users of the financial statements.
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© 2021 Pearson Education, Inc.
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, C H AP T E R
IIll 1 T HE
IIll IIl IIll IIll IIll I I l l I I l l IIll IIll I I l l FIN A N C I A L
Il IIl IIll IIll IIll IIll IIll IIll I I l l R E PO R T I N G
IIll IIll IIl IIll IIll IIll IIll IIll 1 -3IIll IIll
I I l l
EN V IR O N MEN T
I I l l IIl IIll IIll IIll IIll IIll IIll IIl IIl IIll




Solution to BE1-2 IIll IIll




Financial accounting is the process of identifying, measuring, and communicating financial
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information about an economic entity to various user groups within the legal, economic,
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political, and social environment. This definition contains four major elements: 1. Financial
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information; 2.Economic entity; 3. User groups and 4. Legal, economic, political, and social
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environment
IIll




Solution to BE1-3 IIll IIll




Financial Statement Users IIl IIl



and Other Parties
IIll IIll IIll Role
10. Are shareholders of the company.
10 Equity Investors IIll IIll IIll IIll

IIll IIll IIll


1. Are banks and other financial institutions that lend IIll IIll IIll IIll IIll IIll IIll




IIll 1 Creditors
IIll money to the company. IIll IIll IIll IIll




5. Use financial information to review and
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IIll 5 Financial Analysts
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analyze reported results of the companies they
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cover and make investment recommendations.
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IIll 8 Employees and Labor
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IIll Unions 8. Use financial information during negotiation of IIll IIll IIll IIll IIll



new labor agreements and compensation contracts.
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IIll 2 Suppliers and Customers
IIll IIll IIll 2. Use financial statements to determine whether to IIll IIll IIll IIll IIll IIll



conduct business or purchase products from a
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IIll 7 Government Agencies
IIll IIll company. IIll




7. Review the financial statements of publicly
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IIll 3 Competitors
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traded companies for a variety of reasons that are
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in the public interest. IIll IIll IIll IIll

IIll 4 External Auditors
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3. Use financial information to determine their market IIll IIll IIl IIll IIll IIll




IIll 6 Internal Auditors
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position relative to the reporting entity and to
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attempt to identify future strategies of the
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IIll 11 Regulatory Bodies
IIll IIll reporting entity. IIll IIll




4. Are independent of the company and IIll IIll IIll IIll IIll

IIll 9 Professional Organizations
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responsible for ensuring that management
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prepares and issues financial statements that
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comply with accounting standards and fairly
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present the financial position and economic
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performance of the company. IIll IIll IIll IIll




6. Are employees of the company serving in an
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advisory role to management. They provide
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information to management regarding the
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company‘s operations and proper functioning of its
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internal controls. IIll IIll




11. Protect investors and oversee the accounting and IIll IIll IIll IIll IIll IIll



auditing standard setting processes.
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9. Support accounting professionals throughout their IIll IIll IIll IIll




© 2021 Pearson Education, Inc.
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, 1 -4 IIll IIll S O L UT I O N S
Il IIll M AN UAL
IIll Il IIll IIll IIll IIll I I l l IIll IIll IIll IIll IIll I I l l FO R
IIl IIll I I l l IN T ER M ED IA T E
IIll IIll IIll IIll IIll IIll IIll IIll IIll IIll IIll
I I l l
I I A C C O U N T ING
l l IIll IIll IIll IIll IIll IIll IIll II ll




careers by providing training, professional skills
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development, and other resources.
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Solution to BE1-4 IIll IIll




Financial statement users and why each would use the financial statements are summarized
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below:
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1. Equity investors - Equity investors buy stock in the company, that is, they
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purchase a percentage of the company itself. The financial statements help them
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make investment decisions.
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2. Creditors - Creditors loan money to the company. The financial statements help them
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assess the creditworthiness of the company, and whether principal and interest will be
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repaid. IIll




3. Competitors - Competitors use financial statements to determine their market IIll IIll IIll IIll IIll IIll IIll IIll IIll



position relative to the reporting entity.
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© 2021 Pearson Education, Inc.
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