COMPLETE
SOLUTION MANUAL AND INSTRUCTOR RESOURCE FOR
x x x x x
Intermediate Accounting, 18th Edition 18th Edition, by
x x x x x x
Donald E. Kieso, Jerry J. Weygandt and Terry D. Warfield.
x x x x x x x x x x
ISBN-13 978-1119790976 x x
Chapter 1 x
Financial Accounting and Accounting Standards
x x x x
Assignment Classification Table (By Topic)
x x x x
Topics Questions Brief Exercises Critical
Exercise
x Thinkin
x
s g
1. Environment xof 1,2,x3,4 1 1 1
xaccounting,
xprinciples,x
objectives,
x standards,
xaccountingtheory.
2. Authoritative 5,6, x7,8 2 2 2
xpronouncements
xandx rule-making
xbodies.
3. Conceptual xframework- 9, x 10 3 3,4
general, xobjective xof
x
xfinancial xreporting.
4. Qualitative xcharacteristics xof 11,12, x13, x14, 3,4, x5, x6, x7 4,5,6 5, x 10
accounting. 15, x16,17
5. Elements xof 18, x19 8, x 9 7
xfinancial
xstatements
.
6. Basic xassumptions xand 20, x21, x 22, x23, 10, x11, x12, 4, x 8, x 9, x 10, 6, x 7, x 8, x 9, x 11
principles. 24, x 25, x 26, x 27, 13, x14 11, x12
28, x 29, x 30,31
7. Cost x constraint. 32,33,34
8. Role xof xpressure xgroups. 35, x36 12, x14, x 15, x 16,
17
9. Ethical xissues. 37, x38,39,40 13
Copyright © 2022 WILEY Kieso, Intermediate Accounting, 18/e, Solutions Manual (For Instructor Use Only) 5-1-1
, Assignment Classification Table (By Learning Objective)
x x x x x
Learning xObjectives Questions Brief Exercises Critical
xExercise xThinkin
s g
1. Describe xthe xfinancial xreporting 1, x2, x3, x4, 1,x2 1, x2 1
xenvironment, xmajor xstandard- 5, x6, x7, x8
xsetting xbodies, xand xthe xmeaning
xof xgenerally xaccepted xaccounting
principlesx(GAAP).
x
2. Describe x the x components x and 9, x 10, x 11, x12, 3, x5, x6, 3, x4, x 5, x6, x 7 2,3,4, x5,
usefulness x of x the x conceptual 13, x 14, x15, x 16, 7, x8,9 10
framework. 17, x18, x19
3. Discuss xthe xbasic xassumptions 20, x 21, x 22, x23, 4, x 10, x 11, 8, x 9, x 10, x 11, 6, x 7, x 8, x 9,
and x principles x of x accounting. 24, x 25, x 26, x 27, 12, x13, x14 12 11, x12
28, x 29, x31,
32, x33, x34
4. Identify xthe xmajor xchallenges x in 30, x35, x 36, x 37, 2 11, x13, x 14,
the xfinancial xreporting 38, x39,40 15, x16
environment.
Assignment Characteristics Table (Time on Task)
x x x x x
Item Description Level x of Time
xDifficult x(minutes
y )
E1.1 Need xfor x GAAP. Simple 15-20
E1.2 Financial x reporting x and x accounting x standards. Simple 15-20
E1.3 Usefulness, x objective x of xfinancial x reporting. Simple 15-20
E1.4 Usefulness, x objective x of xfinancial x reporting, Simple 15-20
xqualitative x characteristics.
E1.5 Qualitative x characteristics. Moderate 20-30
E1.6 Qualitative x characteristics. Simple 15-20
E1.7 Elements x of xfinancial x statements. Simple 15-20
E1.8 Assumptions, xprinciples, x and x constraint. Simple 15-20
E1.9 Assumptions, xprinciples, x and x constraint. Moderate 20-25
E1.10 Full xdisclosure x principle. Complex 20-25
E1.11 Accounting xprinciples x and x assumptions- Moderate 20-25
E1.12 Accounting xprinciples-comprehensive. Moderate 20-25
CT1.1 Securities x and x Exchange x Commission. Moderate 30-40
CT1.2 Conceptual xframework-general. Simple 20-25
CT1.3 Conceptual xframework-general. Simple 25-35
CT1.4 Objective x of xfinancial x reporting. Moderate 25-35
CT1.5 Qualitative x characteristics. Moderate 30-35
5-1-2 Copyright © 2022 WILEY Kieso, Intermediate Accounting, 18/e, Solutions Manual (For Instructor Use Only)
, CT1.6 Revenue x recognition x principle. Complex 25-30
CT1.7 Expense x recognition x principle. Complex 20-25
CT1.8 Expense x recognition x principle. Moderate 20-25
CT1.9 Expense x recognition x principle. Moderate 20-30
CT1.10 Qualitative x characteristics. Moderate 20-30
CT1.11 Expense x recognition x principle. Moderate 20-25
CT1.12 Cost x Constraint. Moderate 30-35
CT1.13 Rule-making x Issues. Complex 20-25
CT1.14 Models xfor x setting x GAAP. Simple 15-20
CT1.15 Economic x consequences. Moderate 25-35
CT1.16 GAAP x and x economic x consequences. Moderate 25-35
Answers to Questions x x
1. If xa xcompany‘s xfinancial xperformance xis xmeasured xaccurately, xfairly, xand xon xa xtimely xbasis, xthe
xrightxmanagers xand xcompanies xcan xattract xinvestment xcapital. xUnreliable xand xirrelevant xinformation
xleadsx to xpoor xcapital xallocation, xwhich xadversely xaffects xthe xefficiency xof xthe xsecurities xmarket.
LO: x1, xBloom: xK, xDifficulty: xSimple, xTime: x1-3, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
2. The xobjective xof xgeneral xpurpose xfinancial xreporting xis xto xprovide xfinancial xinformation xabout xthe
xreporting xentity xthat xis xuseful xto xpresent xand xpotential xequity xinvestors, xlenders, xand xother
xcreditors xin xmaking xdecisions xabout xproviding xresources xto xthe xentity xthrough xequity xinvestments
xand xloans xor xother xforms xof xcredit. xInformation xthat xis xdecision-useful xto xcapital xproviders
x(investors) xmay xalso xbexuseful xto xother xusers xof xfinancial xreporting xwho xare xnot xinvestors.
LO: x1, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xDecision xMaking
3. Investors xare xinterested xin xfinancial xreporting xbecause xit xprovides xinformation xthat xis xuseful xfor
xmaking xdecisions x(referred xto xas xthe xdecision-usefulness xapproach). xWhen xmaking x these
xdecisions, xinvestors xare xinterested xin xassessing xthe xcompany‘s x(1) xability xto xgenerate xnet xcash
xinflows xand x(2) xmanagement‘s xability xto xprotect xand xenhance xthe xcapital xproviders‘ xinvestments.
xFinancial xreporting xshould xtherefore xhelp xinvestors xassess xthe xamounts, xtiming, xand xuncertainty
xof xprospective x cash x inflows x from x dividends x or x interest, x and x the x proceeds x from x the x sale,
x redemption, xor xmaturity xof xsecurities xor xloans. xFor xinvestors xto xmake xthese xassessments, xthe
xeconomic xresources xof xan xenterprise, xthe xclaims xto xthose xresources, xand xthe xchanges xin xthem
xmust xbe xunderstood.
LO: x1, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xDecision xMaking
4. A xcommon xset xof xfinancial xaccounting xand xreporting xstandards xapplied xby xall xbusinesses xand
xentities xshould xproduce xfinancial xstatements xwhich xare xreasonably xcomparable. xWithout xa
xcommonx set xof xstandards, xeach xenterprise xcould, xand xwould, xdevelop xa xtheory xstructure xand x set
x of xpractices, xresulting xin xnoncomparability xamong x the xfinancial xstatements xof x enterprises.
LO: x1, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
5. The xSEC xhas xthe xpower xto xprescribe, xin xwhatever xdetail xit xdesires, xthe xaccounting xpractices xand
xprinciples xto xbe xemployed xby xcompanies xthat xfall xwithin xits xjurisdiction. xBecause xthe xSEC
xreceives xaudited xfinancial xstatements xfrom xnearly xall xcompanies xthat xissue xsecurities xto xthe xpublic
xor xare xlisted x
on xstock xexchanges, xit xis xgreatly xinterested xin xthe xcontent, xaccuracy, xand xcredibility xof
xthe xstatements. x For xmany xyears, xthe xSEC xrelied xon xthe xAICPA xto xregulate xthe xprofession xand
xdevelop xand xenforce xaccounting x principles. x Lately, x the x SEC x has x assumed x a x more x active
x role x in x the x development x of
Copyright © 2022 WILEY Kieso, Intermediate Accounting, 18/e, Solutions Manual (For Instructor Use Only) 5-1-3
, accounting xstandards, xespecially xin xthe xarea xof xdisclosure xrequirements. xIn xDecember x1973, xin
xASR xNo. x150, xthe xSEC xsaid xthe xFASB‘s xstatements xwould xbe xpresumed xto xcarry xsubstantial
xauthoritative xsupport xand xanything xcontrary xto xthem xto xlack xsuch xsupport. xIt xthereby xsupports xthe
xdevelopment xofxaccounting xprinciples xin xthe xprivate xsector.
LO: x1, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
6. The x explanation x should x note x that x generally x accepted x accounting x principles x or x standards x have
―substantial xauthoritative xsupport.‖ xThey xconsist xof x accounting xpractices, xprocedures, xconcepts,
xand xmethods xthat xare xrecognized xby xa xlarge xmajority xof xpracticing xaccountants xas xwell xas xother
xmembers xof xthe xbusiness xand xfinancial xcommunity. xStatements xissued xby xthe xFinancial
xAccounting xStandards xBoard xconstitute x ―substantial xauthoritative x support.‖
LO: x1, xBloom: xK, xDifficulty: xSimple, x5-10, xAACSB: xCommunication, xAICPA xBC: x None, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
Questions xChapter x1 x(Continued)
7. The xFASB xAccounting xStandards xCodification x(Codification) xis xa xcompilation xof xall xGAAP xin xone
xplace. xIts xpurpose xis xto xintegrate xand xsynthesize xexisting xGAAP, xnot xto xcreate xnew xGAAP. xIt
xcreates xone xlevel xof xGAAP xwhich xis xconsidered xauthoritative. xThe xFASB xCodification xResearch
xSystems x(CRS) xis xan xonline xreal-time xdatabase xthat xprovides xeasy xaccess xto xthe xCodification. xThe
xCodification xand xthe xrelated xCRS xprovide xa xtopically xorganized xstructure xthat xis xsubdivided xinto
xtopics, xsubtopics,xsections, xand xparagraphs.
LO: x1, xBloom: xK, xDifficulty: xModerate, xTime: x5-7, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
8. It xis xhoped xthat xthe xCodification xwill xhelp xusers xto xbetter xunderstand xwhat xGAAP xis. xIf xthis xoccurs,
xcompanies xwill xbe xmore xlikely xto xcomply xwith xGAAP xand xthe xtime xto xresearch xaccounting xissues
xwill x
be xsubstantially xreduced. xIn xaddition, xthrough xthe xelectronic xweb-based xformat, xGAAP xcan xbe
xeasilyxupdated xwhich xwill xhelp xusers xstay xcurrent.
LO: x1, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
9. A xconceptual xframework xis xa xcoherent xsystem xof xinterrelated xobjectives xand xfundamentals xthat
xcan xlead xto xconsistent xstandards xand xthat xprescribes xthe xnature, xfunction, xand xlimits xof xfinancial
xaccount- xing xand xfinancial xstatements. xA xconceptual xframework xis xnecessary xfor xfinancial
xaccounting xfor xthe xfollowing x reasons:
(1) It xenables xthe xFASB xto xissue xmore xuseful xand xconsistent xstandards xin xthe xfuture.
(2) New xissues xwill xbe xmore xquickly xsolvable xby xreference xto xan xexisting xframework xof xbasic xtheory.
(3) It xincreases xfinancial xstatement xusers‘ xunderstanding xof xand xconfidence xin xfinancial xreporting.
(4) It xenhances xcomparability xamong xcompanies‘ xfinancial xstatements.
LO: x2, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
10. The xobjective xof xfinancial xreporting xis xto xprovide xfinancial xinformation xabout xthe xreporting xentity
xthat xis xuseful xto xpresent xand xpotential xequity xinvestors, xlenders, xand xother xcreditors xin xmaking
xdecisions xabout xproviding x resources xto x the xentity.
LO: x2, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA x BC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
11. ―Qualitative xcharacteristics xof xaccounting xinformation‖ xare xthose xcharacteristics xthat xcontribute xto
xthe xquality xor xvalue xof xthe xinformation. xThe xoverriding xqualitative xcharacteristic xof xaccounting
xinfor- xmation xis x usefulness xfor xdecision-making.
LO: x2, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA x BC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
12. Relevance xand xfaithful xrepresentation xare xthe xtwo xfundamental xqualities xof xuseful xaccounting
xinformation. xFor xinformation xto xbe xrelevant, xit xshould xbe xcapable xof xmaking xa xdifference xin xa
xdecision xby x helping x users x to x form x predictions x about x the x outcomes x of x past, x present, x and x future
x events x or x to
5-1-4 Copyright © 2022 WILEY Kieso, Intermediate Accounting, 18/e, Solutions Manual (For Instructor Use Only)
, confirm xor xcorrect xexpectations. xFaithful xrepresentation xrests xon xwhether xthe xnumbers xand
xdescriptions xmatch x what xreally xexisted xor xhappened.
LO: x2, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
Questions xChapter x1 x(Continued)
13. The xconcept xof xmateriality xrefers xto xthe xrelative xsignificance xof xan xamount, xactivity, xor xitem xto
xinformative xdisclosure, xproper xpresentation xof xfinancial xposition, xand xthe xresults xof xoperations.
xMateriality xhas xqualitative xand xquantitative xaspects; xboth xthe xnature xof xthe xitem xand xits xrelative
xsize xenter xinto x its xevaluation.
An xaccounting xmisstatement xis xsaid xto xbe xmaterial xif xknowledge xof x the xmisstatement xcould
xaffect xthe xdecisions xof xthe xaverage xinformed xreader xof xthe xfinancial xstatements. xFinancial
xstatements xare xmisleading xif xthey xomit xa xmaterial xfact xor xinclude xso xmany ximmaterial xmatters xas
xto xbe xconfusing. xIn xthe xexamination, xthe xauditor xconcentrates xefforts xin xproportion xto xdegrees xof
xmateriality xand xrelativexrisk xand xdisregards ximmaterial xitems.
The x relevant x criteria x for x assessing x materiality x will x depend x upon x the x circumstances x and x the
x nature x
of xthe xitem xand xwill xvary xgreatly xamong xcompanies. xFor xexample, xan xerror xin xcurrent
xassets xor xcurrent xliabilities xwill xbe xmore ximportant xfor xa xcompany xwith xa xflow xof xfunds xproblem
xthan xfor xone xwith x adequate x working x capital.
The xeffect xupon xnet xincome x(or xearnings xper xshare) xis xthe xmost xcommonly xused xmeasure xof
xmateriality. xThis xreflects xthe xprime ximportance xattached xto xnet xincome xby xinvestors xand xother
xusers xof x the x statements. x The x effects x upon x assets x and x equities x are x also x important, x as x are
x misstatements x of xindividual xaccounts xand xsubtotals xincluded xin xthe xfinancial xstatements. xThe
xFASB xdefines xmateriality xto xbe xconsistent xwith xthe xlegal xconcept xof xmateriality, xas xestablished xin
xthe xsecurities xlaws. xSpecifically, xinformation xis xmaterial x―if xthere xis xa xsubstantial xlikelihood xthat
xthe xomitted xor xmisstated xitem xwould xhave xbeen xviewed xby xa xreasonable xresource xprovider xas
xhaving xsignificantly xaltered x the xtotal xmix xof x information.‖
There xare xno xrigid xstandards xor xguidelines xfor xassessing xmateriality. xThe xlower xbound xof
xmateriality xhas xbeen xvariously xestimated xat x5% xof xnet xincome, xbut xthe xdetermination xwill xvary
xbased xupon xthe xindividual xcase xand xmight xnot xfall xwithin xthese xlimits. xCertain xitems, xsuch xas xa
xquestionable xloan xto xa x company xofficer, xmay xbe xconsidered xmaterial xeven xwhen xminor xamounts
xare xinvolved. xIn x contrast, xax
large xmisclassification xamong xexpense xaccounts xmay xnot xbe xdeemed
xmaterial xif xthere xis xno xmisstatement xof xnet xincome.
LO: x2, xBloom: xC, xDifficulty: xSimple, xTime: x5-7, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xDecision xMaking
14. The xenhancing xcharacteristics xare xcomparability, xverifiability, xtimeliness, xand xunderstandability.
xEnhancing xqualities xare xqualitative xcharacteristics xthat xare xcomplementary xto xthe xfundamental
xqualitative xcharacteristics. xThese xcharacteristics xdistinguish xmore xuseful xinformation xfrom xless
xuseful xinformation.
LO: x2, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
15. In xproviding xinformation xto xusers xof xfinancial xstatements, xthe xFASB xrelies xon xgeneral-purpose
xfinancial xstatements. xThe xintent xof xsuch xstatements xis xto xprovide xthe xmost xuseful xinformation
xpossible xat xminimal xcost xto xvarious xuser xgroups. xUnderlying xthese xobjectives xis xthe xnotion xthat xa
xuser xneeds xa xreasonable xknowledge xof xbusiness xand xfinancial xaccounting xmatters xto xunderstand
xthe xinformation xcontained xin xfinancial xstatements. xThis xpoint xis ximportant. xIt xmeans xthat xin xthe
xpreparation xof xfinancial xstatements, xa xlevel xof xreasonable xcompetence xfor xthe xuser xcan x be
xassumed; xthis xhas xan x impact xon x the xway xand xthe xextent xto xwhich x information xis xreported.
LO: x2, xBloom: xC, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: x AICPA xAC: xReporting, xAICPA xPC: xCommunication
Copyright © 2022 WILEY Kieso, Intermediate Accounting, 18/e, Solutions Manual (For Instructor Use Only) 5-1-5
,16. Comparability xfacilitates xcomparisons xbetween xinformation xabout xtwo xdifferent xenterprises xat xa
xparticular xpoint xin xtime. xConsistency, xa xtype xof xcomparability, xfacilitates xcomparisons xbetween
xinformation xabout xthe xsame x enterprise xat xtwo xdifferent xpoints xin x time.
LO: x2, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
Questions xChapter x1 x(Continued)
17. The xaccounting xliterature xcontains xmany xterms xthat xhave xspecific xmeanings. xSome xof xthese
xterms xhave xbeen xin xuse xfor xa xlong xtime, xand xtheir xmeanings xhave xchanged xover xtime. xSince xthe
xelements xof xfinancial xstatements xare xthe xbuilding xblocks xwith xwhich xthe xstatements xare
xconstructed, xit xis xnecessary xto xdevelop xa xbasic xdefinitional xframework xfor xthem.
LO: x2, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
18. Distributions xto xowners xdiffer xfrom xexpenses xand xlosses xin xthat xthey xrepresent xtransfers xto
xowners, xand xthey xdo xnot xarise xfrom xactivities xintended xto xproduce xincome. xExpenses xdiffer xfrom
xlosses xin xthat x they x arise x from x the x entity‘s x ongoing x major x or x central x operations. x Losses x arise
x from x peripheralxor xincidental xtransactions.
LO: x2, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA x BC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
19. Investments xby xowners xdiffer xfrom xrevenues xand xgains xin x that x they xrepresent xtransfers xby
xowners xto xthe xentity, xand xthey xdo xnot xarise xfrom xactivities xintended xto xproduce x income.
xRevenues xdiffer xfrom xgains xin xthat xthey xarise xfrom xthe xentity‘s xongoing xmajor xor xcentral
xoperations. xGains xarise xfrom xperipheral xor xincidental xtransactions.
LO: x2, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xNone
20. The xfour xbasic xassumptions xthat xunderlie xthe xfinancial xaccounting xstructure xare:
(1) The xeconomic xentity xassumption.
(2) The xgoing xconcern xassumption.
(3) The xmonetary xunit xassumption.
(4) The xperiodicity xassumption.
LO: x3, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA x BC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
21. (a) xIn xaccounting, xit xis xgenerally xagreed xthat xany xmeasures xof xthe xsuccess xof xan xenterprise xfor
xperiods x less x than x its x total x life x are x at x best x provisional x and x subject x to x correction.
x Measurement x of xprogress xand xstatus xfor xarbitrary xtime xperiods xis xa xpractical xnecessity xto
xserve xthose xwho xmust xmake xdecisions. xIt xis xnot xthe xresult xof xpostulating xspecific xtime
xperiods xas xmeasurable xsegments xof xtotal xlife.
(b) xThe xpractice xof xperiodic xmeasurement xhas xled xto xmany xof xthe xmost xdifficult xaccounting xprob-
xlems, xsuch xas xinventory xpricing, xdepreciation xof xlong-term xassets, xand xthe xnecessity xfor
xrevenue xrecognition xtests. xThe xaccrual xsystem xcalls xfor xassociating xrelated xrevenues xand
xexpenses. xThis xbecomes xdifficult xfor xan xarbitrary xtime xperiod xwith xincomplete xtransactions xin
xprocess xat xboth xthe xbeginning xand xthe xend xof xthe xperiod. xMany xaccounting xpractices xsuch
xas xadjusting xentries xor xthe xreporting xof xcorrections xof xprior xperiods xresult xdirectly xfrom
xefforts xto xmake x each x period‘s x calculations x as x accurate x as x possible x and x yet
x recognizing x that x they x arexonly xprovisional.
LO: x3, xBloom: xC, xDifficulty: xSimple, xTime: x5-7, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xMeasurement, xReporting, xAICPA xPC: xNone
22. The xmonetary xunit xassumption xassumes xthat xthe xunit xof xmeasure x(the xdollar) xremains xreasonably
xstable xso xthat xdollars xof x different xyears xcan xbe xadded xwithout xany xadjustment. xWhen xthe xvalue
xof xthe xdollar xfluctuates xgreatly xover xtime, xthe x monetary xunit xassumption xloses xits xvalidity.
The xFASB xin xConcept xNo. x5 xindicated xthat xit xexpects xthe xdollar xunadjusted xfor xinflation xor
xdeflation xto xbe xused xto xmeasure xitems xrecognized xin xfinancial xstatements. xOnly xif xcircumstances
xchange xdramatically xwill xthe x FASB xconsider xa x more x stable xmeasurement xunit.
LO: x3, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xNone
5-1-6 Copyright © 2022 WILEY Kieso, Intermediate Accounting, 18/e, Solutions Manual (For Instructor Use Only)
,Questions xChapter x1 x(Continued)
23. Fair xvalue xis xdefined xas x―the xprice xthat xwould xbe xreceived xto xsell xan xasset xor xpaid xto xtransfer xa
xliability xin xan xorderly xtransaction xbetween xmarket xparticipants xat xthe xmeasurement xdate.‖ xFair
xvalue xis, xtherefore, xa x market-based x measure.
LO: x3, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: x Measurement, xReporting, xAICPA xPC: xAICPA xPC:
xNone
24. The xfair xvalue xhierarchy xprovides xinsight xinto xthe xpriority xof xvaluation xtechniques xthat xare xused xto
xdetermine xfair xvalue. xThe xfair xvalue xhierarchy xis xdivided xinto x three xbroad xlevels.
Fair xValue xHierarchy
Level x1: x Observable xinputs xthat xreflect xquoted xprices xfor Least xSubjective
identical xassets xor xliabilities xin xactive
xmarkets.
Level x2: xInputs xother xthan xquoted xprices xincluded xin xLevel x1 xthat
xare xobservable xfor xthe xasset xor xliability xeither xdirectly
xor xthrough xcorroboration x with xobservable xdata.
Level x3: x Unobservable x inputs x(for xexample, xa x company‘s xown Most xSubjective
data xor xassumptions).
x
As xindicated, xLevel x1 xis xthe xmost xreliable xbecause xit xis xbased xon xquoted xprices, xsuch xas xa
xclosing xstock xprice xin xthe xWall xStreet xJournal. xLevel x2 xis xthe xnext xmost xreliable xand xwould x rely
x on xevaluating xsimilar xassets xor xliabilities xin xactive xmarkets. xAt xthe xleast-reliable xlevel, xLevel x3,
xmuch xjudgment xis xneeded xbased xon xthe xbest xinformation xavailable xto xarrive xat xa xrelevant xand
xrepresentationally xfaithful xfair xvalue x measurement.
LO: x3, xBloom: xK, xDifficulty: xSimple, xTime: x5-7, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xMeasurement, xReporting, xAICPA xPC: xNone
25. The xrevenue xrecognition xprinciple xrequires xthat xcompanies xrecognize xrevenue xin xthe xaccounting
xperiod xin xwhich xthe xperformance xobligation xis xsatisfied. xIn xthe xcase xof xservices, xrevenue xis
xrecognized xwhen xthe xservices xare xperformed. xIn xthe xcase xof xselling xa xproduct, xthe xperformance
xobligation xis xmet xwhen xthe xproduct xis xdelivered. xCompanies xfollow xa xfive-step xprocess xto
xanalyze xrevenue xarrangements xto xdetermine xwhen xrevenue xshould xbe xrecognized: x(1) xIdentify
xthe xcontract(s) xwith xthe xcustomer; x(2) xIdentify xthe xseparate xperformance xobligations xin xthe
xcontract; x(3) xDetermine xthe xtransaction xprice; x(4) xAllocate xthe xtransaction xprice xto xseparate
xperformance xobligations, xand; x(5) xRecognize xrevenue x when xeach xperformance xobligation xis
xsatisfied.
LO: x3, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xMeasurement, xReporting, xAICPA xPC: xNone
26. A xperformance xobligation xis xa xpromise xto xdeliver xa xproduct xor xprovide xa xservice xto xa xcustomer.
xThe xrevenue xrecognition xprinciple xrequires xthat xcompanies xrecognize xrevenue xin xthe xaccounting
xperiod xin xwhich xthe xperformance xobligation xis xsatisfied. xIn xthe xcase xof xservices, xrevenue xis
xrecognized xwhen xthe xservices xare xperformed. x In xthe xcase xof xselling xa xproduct, xthe xperformance
xobligation xis xmet xwhen xthe xproduct xis xdelivered.
LO: x3, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xMeasurement, xReporting, xAICPA xPC: xNone
Copyright © 2022 WILEY Kieso, Intermediate Accounting, 18/e, Solutions Manual (For Instructor Use Only) 5-1-7
,Questions xChapter x1 x(Continued)
27. The xfive xsteps xin xthe xrevenue xrecognition xprocess xare:
Step x1 xIdentify xthe xcontract(s) xwith xthe xcustomer. xA xcontract xis xan xagreement xbetween xtwo
xparties xthat xcreates xenforceable x rights xor xobligations.
Step x2 xIdentify xthe xseparate xperformance xobligations xin xthe xcontract. xA x performance
xobligation xis xeither xa xpromise x to xprovide x a xservice xor xdeliver xa xproduct, xor xboth.
Step x3. xDetermine xthe xtransaction xprice. xThe xtransaction xprice xis xthe xamount xof xconsideration
xthat x a x company x expects x to x receive x from x a x customer x in x exchange x for x transferring x a
x goodxor xservice.
Step x4. xAllocate xthe xtransaction xprice xto xseparate xperformance xobligations. xThis xis xusually
xdone xby xestimating xthe xvalue xof xconsideration xattributable xto xeach xproduct xor x service.
Step x5. xRecognize xrevenue xwhen xeach x performance xobligation xis xsatisfied. x This x occurs
xwhen xthe x service x is xprovided xor xthe xproduct xis xdelivered.
Note xthat xmany xrevenue xtransactions xpose xfew xproblems xbecause xthe xtransaction xis xinitiated xand
xcompleted x at xthe xsame xtime.
LO: x3, xBloom: xC, xDifficulty: xSimple, xTime: x5-7, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: x Measurement, xReporting, xAICPA xPC: xNone
28. Revenues xare xrecognized xwhen xa xperformance xobligation xis xsatisfied–in xthe xcase xof xservices,
xrevenue xis xrecognized xwhen xthe xservices xare xperformed. xTherefore, xrevenue xfor xSelane xEatery
xshould xbe xrecognized xat xthe xtime x the x luncheon xis xserved.
LO: x3, xBloom: xAN, xDifficulty: xSimple, xTime: x3-5, xAnalytic, xAICPA xBC: xNone, xAICPA xAC: x Measurement, xReporting, xAICPA xPC: xNone
29. The xcause xand xeffect xrelationship xcan xseldom xbe xconclusively xdemonstrated, xbut xmany xcosts
xappear xto xbe xrelated xto xparticular xrevenues, xand xrecognizing xthem xas xexpenses xaccompany
xrecognition xof xthe xrevenue. xExamples xof xexpenses xthat xare xrecognized xby xassociating xcause xand
xeffect xare x sales xcommissions xand x the x cost xof x products xsold xor xservices xprovided.
Systematic xand xrational xallocation xmeans xthat xin xthe xabsence xof xa xdirect xmeans xof xassociating
xcause xand xeffect, xand xwhere xthe xasset xprovides xbenefits xfor xseveral xperiods, xits xcost xshould xbe
xallocated xto xthe xperiods xin xa xsystematic xand xrational xmanner. xExamples xof xexpenses xthat xare
xrecognized xin xa xsystematic xand xrational xmanner xare xdepreciation xof xplant xassets, xamortization xof
xintangible xassets, xand x allocation xof xrent x and x insurance.
Some xcosts xare ximmediately xexpensed xbecause xthe x costs xhave xno xdiscernible xfuture xbenefits
xor xthe xallocation xamong xseveral xaccounting xperiods xis xnot xconsidered xto xserve xany xuseful
xpurpose. xExamples x include x officers‘ x salaries, x most x selling x costs, x amounts x paid x to x settle
x lawsuits, x and x costsx
of x resources xused xin xunsuccessful xefforts.
LO: x3, xBloom: xAN, xDifficulty: xSimple, xTime: x5-7, xAnalytic, xAICPA xBC: xNone, xAICPA xAC: x Measurement, xReporting, xAICPA xPC: xNone
30. (a) xTo xbe xrecognized xin xthe xmain xbody xof xfinancial xstatements, xan xitem xmust xmeet xthe xdefinition
xof xan xelement. xIn xaddition, xthe xitem xmust xhave xbeen xmeasured, xrecorded xin xthe xbooks, xand
xpassedxthrough xthe xdouble-entry xsystem xof xaccounting.
(b) Information xprovided xin xthe xnotes xto xthe xfinancial xstatements xamplifies xor xexplains xthe xitems
xpresented xin xthe xmain xbody xof xthe xstatements xand xis xessential xto xan xunderstanding xof xthe
xper- xformance xand xposition xof xthe xenterprise. xInformation xin xthe xnotes xdoes xnot xhave xto xbe
xquanti- xfiable, xnor xdoes xit xneed xto xqualify xas xan xelement.
(c) Supplementary xinformation xincludes xinformation xthat xpresents xa xdifferent xperspective xfrom
xthat xadopted xin xthe xfinancial xstatements. xIt xalso xincludes xmanagement‘s xexplanation xof xthe
xfinancialxinformation xand xa xdiscussion xof xthe x significance x of xthat xinformation.
LO: x4, xBloom: xC, xDifficulty: xSimple, xTime: x5-7, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xMeasurement, xReporting, xAICPA xPC: xNone
5-1-8 Copyright © 2022 WILEY Kieso, Intermediate Accounting, 18/e, Solutions Manual (For Instructor Use Only)
,Questions xChapter x1 x(Continued)
31. The xgeneral xguide xfollowed xwith xregard xto xthe xfull xdisclosure xprinciple xis xto xdisclose xin xthe
xfinancial xstatements xany xfacts xof xsufficient ximportance xto xinfluence xthe xjudgment xof x an
x informed x reader. xThe xfact xthat xthe xamount xof xoutstanding xcommon xstock xdoubled xin xJanuary xof
xthe xsubsequent xreporting xperiod xprobably xshould xbe xdisclosed xbecause xsuch xa xsituation xis xof
ximportance xto xpresent xstockholders. xEven xthough xthe xevent xoccurred xafter xDecember x31, x2025
x(referred xto xas xa xsubsequent xevent), xit xshould xbe xdisclosed xon xthe xbalance xsheet xas xof
xDecember x31, x2025, xin xorder xto xmake xadequate xdisclosure. x(The xmajor xpoint xthat xshould xbe
xemphasized xthroughout xthe xentire xdiscussion x on x full x disclosure x is x that x there x xis x normally x no x
x―black‖ x or x ―white‖ x but x varying x shades x of xgrey xand x it xtakes xexperience xand xgood x judgment xto
x arrive xat xan x appropriate xanswer).
LO: x3, xBloom: xAN, xDifficulty: xSimple, xTime: x3-5, xAnalytic, xAICPA xBC: xNone, xAICPA xAC: xMeasurement, xReporting, xAICPA xPC: xNone
32. Accounting xinformation xis xsubject xto xthe xcost xconstraint. xInformation xshould xnot xbe xprovided
xunless xthe xbenefits xexceed x the x costs xof x preparing x it.
LO: x3, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAnalytic, xAICPA xBC: xNone, xAICPA xAC: x Measurement, xReporting, xAICPA xPC: xNone
33. The xcosts xof xproviding xaccounting xinformation xinclude xcosts xof xcollecting xand xprocessing,
xdisseminating, xauditing, xpotential xlitigation, xdisclosure xto xcompetitors, xand xanalysis xand
xinterpretation. xBenefits xto xpreparers xmay xinclude xgreater xmanagement xcontrol xand x access x to
xcapital xat xa xlower xcost. xUsers xmay xreceive xbetter xinformation xfor xallocation xof xresources, xtax
xassessment, xand xrate xregulation. xOccasionally xnew xaccounting xstandards xrequire xthe
xpresentation xof xinformation xthat xis xnot xreadily xassembled xby xthe xaccounting xsystems xof xmost
xcompanies. xA xdetermination xshould xbe xmade xas xto xwhether xthe xincremental xor xadditional xcosts
xof xproviding xthe xproposed xinformation xexceed xthe xincremental xbenefits xto xbe xobtained. xThis
xdetermination xrequires xcareful xjudgment xsince xthe xbenefits xof x the xproposed xinformation xmay xnot
xbe xreadily xapparent.
LO: x3, xBloom: xAN, xDifficulty: xSimple, xTime: x3-5, xAnalytic, xAICPA xBC: xNone, xAICPA xAC: xMeasurement, xReporting, xAICPA xPC: xNone
34. In xgeneral, xconservatism xshould xnot xbe xthe xbasis xfor xdetermining xthe xaccounting xfor xtransactions
xbecause x it x conflicts xwith x the xconceptual xframework xquality xof xneutrality.
(a) Acceptable xif xreasonably xaccurate xestimation xis xpossible. xTo xthe xextent xthat xwarranty xcosts
xcan xbe xestimated xaccurately, xthey xshould xbe xrecorded xwhen xan xobligation xexists, xusually xin
xthe xperiod xof xthe xsale.
(b) Not xacceptable. xMost xaccounts xare xcollectible, xor xthe xcompany xwill xbe xout xof xbusiness xvery
xsoon. xHence, xsales xcan xbe xrecorded xwhen xmade. xAlso, xother xcompanies xrecord xsales xwhen
xmade xrather xthan xwhen xcollected, xso xif xaccounts xfor xLandowska xCo. xare xto xbe xcompared
xwith xother xcompanies, xthey xmust xbe xkept xon xa xcomparable xbasis. xHowever, xestimates xfor
xuncollectible xaccounts xshould xbe xrecorded xif xthere xis xa xreasonably xaccurate xbasis xfor
xestimatingxbad xdebts.
(c) Not xacceptable. xA xprovision xfor xthe xpossible xloss xcan xbe xmade xthrough xan xappropriation xof
xretained xearnings, xbut xuntil xjudgment xhas xbeen xrendered xon xthe xsuit xor xit xis xotherwise
xsettled, xentry xof xthe xloss xusually xrepresents xanticipation. xRecording xit xearlier xis xprobably xan
xunwise xlegal xstrategy xas xwell. xFor xthe xloss xto xbe xrecognized xat xthis xpoint, xthe xloss xwould
xhave xto xbe xprobable x and xreasonably xestimable. x(See xFASB xASC x450-10-05 xfor xadditional
xdiscussion xif xdesired.) xNote xdisclosure x is xrequired xif x the xloss xis xnot xrecorded.
LO: x3, xBloom: xAN, xDifficulty: xSimple, xTime: x3-5, xAnalytic, xAICPA xBC: xNone, xAICPA xAC: xMeasurement, xReporting, xAICPA xPC: xNone
35. The xsources xof xpressure xare xinnumerable, xbut xthe xmost xintense xand x continuous xpressure x to
xchange xor xinfluence xaccounting xprinciples xor xstandards xcome xfrom xindividual xcompanies,
xindustry xassociations, xgovernmental xagencies, xpracticing xaccountants, xacademicians,
xprofessional xaccount-x
ing xorganizations, xand xpublic xopinion.
LO: x4, xBloom: xK, xDifficulty: xSimple, x5-10, xAACSB: xCommunication, xAICPA xBC: x Governance xPerspective, xAICPA xAC: xReporting, xAICPA xPC: xCommunica
Copyright © 2022 WILEY Kieso, Intermediate Accounting, 18/e, Solutions Manual (For Instructor Use Only) 5-1-9
, Questions xChapter x1 x(Continued)
36. Economic xconsequences xmean xthe ximpact xof xaccounting xreports xon xthe xwealth xpositions xof
xissuers xand xusers xof xfinancial xinformation xand xthe xdecision-making xbehavior xresulting xfrom xthat
ximpact. xIn xother xwords, xaccounting xinformation ximpacts xvarious xusers xin xmany xdifferent xways,
xwhich xleads xto xwealth x transfers xamong xthese x various xgroups.
If x politics x plays x an x important x role x in x the x development x of x accounting x rules, x the x rules x will x be
x subject xto xmanipulation xto xfurther xwhatever xpolicy xprevails xat xthe xmoment. xNo xmatter xhow xwell-
intentioned xthe xrule xmaker xmay xbe, xif xthe xinformation xis xdesigned xto xindicate xthat xinvesting xin xa
xparticular xenterprise xinvolves xless xrisk xthan xit xactually xdoes, xor xis xdesigned xto xencourage
xinvestment xin xa xparticular xsegment xof xthe xeconomy, xfinancial xreporting xwill xsuffer xan xirreplaceable
xloss xof xcredibility.
LO: x4, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xGovernance xPerspective, xAICPA xAC: xReporting, xAICPA xPC: x Communication
37 xConcern xexists xabout xfraudulent xfinancial xreporting xbecause xit xcan xundermine xthe xentire xfinancial
xreporting xprocess. xFailure xto xprovide xaccurate xinformation xto xusers xcan xlead xto xinappropriate
xallocations xof xresources xin xour xeconomy. xIn xaddition, xfailure xto xdetect xmassive xfraud xcan xlead xto
xadditional xgovernmental xoversight xof x the xaccounting x profession.
LO: x4, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xGovernance xPerspective, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
38. The xexpectations xgap xis xthe xdifference xbetween xwhat xpeople xthink xaccountants xshould xbe xdoing
xand x
what xaccountants xthink xthey xcan xdo. xIt xis xa xdifficult xgap xto xclose. xThe xaccounting xprofession
xrecognizes xit xmust xplay xan ximportant xrole xin xnarrowing xthis xgap. xTo xmeet xthe xneeds xof xsociety,
xthe xprofession xis xcontinuing xits xefforts xin xdeveloping xaccounting xstandards, xsuch xas xnumerous
xpronouncements xissued x by xthe xFASB, xto xserve xas xguidelines xfor xrecording xand xprocessing
xbusiness xtransactions xin xthe xchanging xeconomic xenvironment.
LO: x4, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
39. Some xmajor xchallenges xfacing xthe xaccounting xprofession xrelate xto xthe xfollowing xitems:
Nonfinancial x measurement—how x to x report x significant x key x performance x measurements x such
x asxcustomer xsatisfaction xindexes, xbacklog xinformation xand xreject xrates xon xgoods xpurchased.
Forward-looking x information—how xto x report x more xfuture-oriented x information.
Soft x assets—how x to x report xon x intangible x assets, x such x as x market x know-how, x market
x dominance,xand xwell-trained xemployees.
Timeliness—how xto x report x more x real-time x information.
LO: x4, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xCommunication
40. Accountants xmust xperceive xthe xethical xdimensions xof xsome xsituations xbecause xGAAP xdoes xnot
xdefine xor xcover xall xspecific xfeatures xthat xare xto xbe xreported xin xfinancial xstatements. xIn xthese
xinstances, xaccountants xmust xchoose xamong xalternatives. xThese xaccounting xchoices xinfluence
xwhether xparticular xstakeholders xmay xbe xharmed xor xbenefited. xEthical xdecision-making xinvolves
xawareness xof xpotential xharm xor xbenefit xand xtaking xresponsibility xfor xthe xchoices.
LO: x4, xBloom: xK, xDifficulty: xSimple, xTime: x3-5, xAACSB: xEthics, xCommunication, xAICPA xBC: xNone, xAICPA xAC: xReporting, xAICPA xPC: xEthical xConduct
5-1-10 Copyright © 2022 WILEY Kieso, Intermediate Accounting, 18/e, Solutions Manual (For Instructor Use Only)
