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Test Bank for Intermediate Accounting 18th Edition by Kieso, Weygandt and Warfield, ISBN: 9781119790976, All 23 Chapters Covered, Verified Latest Edition

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Test Bank for Intermediate Accounting 18th Edition by Kieso, Weygandt and Warfield, ISBN: 9781119790976, All 23 Chapters Covered, Verified Latest Edition Test Bank for Intermediate Accounting 18th Edition by Kieso, Weygandt and Warfield, ISBN: 9781119790976, All 23 Chapters Covered, Verified Latest...

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W

SOLUTION MANUAL
Intermediate Accounting, 18th Editio
by Kieso, Warfield Chapter 1 - 23 Comple

,Table of Contents
W W

1WTheWEnvironmentWandWConceptualWFrameworkWofWFinancialWReporting

2WTheWAccountingWInformationWSystem

3WIncomeWStatement,WRelatedWInformation,WandWRevenueWRecognition

4WBalanceWSheetWandWStatementWofWCashWFlows

5WAccountingWandWtheWTimeWValueWofWMoney

6WCashWandWReceivables

7WValuationWofWInventories:WAWCost-BasisWApproach

8WInventories:WAdditionalWValuationWIssues

9WAcquisitionWandWDispositionWofWProperty,WPlant,WandWEquipment

10WDepreciation,WImpairments,WandWDepletion

11WIntangibleWAssets

12WCurrentWLiabilitiesWandWContingencies

13WLong-TermWLiabilities

14WStockholders’WEquity

15WDilutiveWSecuritiesWandWEarningsWperWShare

16WInvestments

17WRevenueWRecognition

18WAccountingWforWIncomeWTaxes

19WAccountingWforWPensionsWandWPostretirementWBenefits

20WAccountingWforWLeases

21WAccountingWChangesWandWErrorWAnalysis

22WStatementWofWCashWFlows

23WFullWDisclosureWinWFinancialWReportingW

, Chapter 1 W

Financial Accounting and Accounting Standards
W W W W

Assignment Classification Table (By Topic)
W W W W

Topics Questions Brief Exercises Critical
Exercises Thinking

1. EnvironmentW of 1,2, W3,4 1 1 1
accounting,Wprinciples,
objectives,W standards,
accountingtheory.

2. Authoritative 5,6, W7,8 2 2 2
pronouncementsWand
rule-makingWbodies.
3. ConceptualW framework- 9,W 10 3 3,4
general,W objectiveW of
financialWreporting.
4. QualitativeWcharacteristicsWofW 11,12,W13,W14,W 3,4, W5, W6, W7 4,5,6 5,W 10
accounting. 15,W16,17
5. ElementsWof 18,W19 8,W 9 7
financial
statements.
6. BasicWassumptionsWand 20,W21,W 22,W23, 10,W11,W12,W 4,W 8,W9,W 10, 6,W 7,W8,W 9,W 11
principles. 24,W25,W 26,W 27, 13,W14W 11,W12
2 8,W 29,W 30,31
7. CostW constraint. 32,33,34
8. RoleWofWpressureWgroups. 35,W36 12,W14,W 15,W 16,
17
9. EthicalWissues. 37,W38,39,40 13

CopyrightW©W2022WWILEY Kieso,WIntermediateWAccounting,W18/e,WSolutionsWManua (ForW InstructorWUseWOnly) 5-1-1
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Assignment Classification Table (By Learning Objective)
W W W W W

LearningWObjectives Questions Brief ExercisesW Critical
Exercises Thinking

1. DescribeWtheWfinancialWreporting 1,W2,W3,W4, 1,W2 1,W2 1
environment,WmajorW standard- 5,W6,W7,W8
settingWbodies,WandWtheWmeaning
ofWgenerallyWacceptedWaccounting
principles(GAAP).
2. DescribeWtheWcomponents Wand 9,W 10,W 11,W12, 3,W5,W6, 3,W4,W 5,W6,W7W 2,3,4,W5,
usefulnessW ofW theWconceptual 13,W 14,W15,W 16, 7,W8,9 10
framework. 17,W18,W19

3. DiscussWtheWbasicWassumptions 20,W 21,W 22,W23, 4,W 10,W 11, 8,W9,W 10,W11,W 6,W 7,W 8,W 9,
andW principlesW ofW accounting. 24,W 25,W26,W 27, 12,W13,W14W 12 11,W12
2 8,W 29,W31,
3 2,W33,W34
4. IdentifyWtheWmajorWchallengesW in 30,W35,W 36,W 37, 2 11,W13,W14,
theWfinancialW reporting 38,W39,40 15,W16
environment.

Assignment Characteristics Table (Time on Task)
W W W W W

Item Description LevelW of Time
Difficulty (minutes)
E1.1 NeedWforW GAAP. Simple 15-20
E1.2 FinancialW reportingW andW accountingW standards. Simple 15-20
E1.3 Usefulness,W objectiveW ofW financialW reporting. Simple 15-20
E1.4 Usefulness,W objectiveW ofW financialW reporting, Simple 15-20
qualitativeWcharacteristics.
E1.5 QualitativeW characteristics. Moderate 20-30
E1.6 QualitativeW characteristics. Simple 15-20
E1.7 ElementsW ofW financialW statements. Simple 15-20
E1.8 Assumptions,Wprinciples,W andW constraint. Simple 15-20
E1.9 Assumptions,Wprinciples,W andW constraint. Moderate 20-25
E1.10 FullWdisclosureW principle. Complex 20-25
E1.11 AccountingWprinciplesW andW assumptions- Moderate 20-25
E1.12 AccountingWprinciples-comprehensive. Moderate 20-25
CT1.1 SecuritiesW andW ExchangeW Commission. Moderate 30-40
CT1.2 ConceptualWframework-general. Simple 20-25
CT1.3 ConceptualWframework-general. Simple 25-35
CT1.4 ObjectiveW ofW financialW reporting. Moderate 25-35
CT1.5 QualitativeW characteristics. Moderate 30-35

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CT1.6 RevenueW recognitionW principle. Complex 25-30
CT1.7 ExpenseW recognitionW principle. Complex 20-25
CT1.8 ExpenseW recognitionW principle. Moderate 20-25
CT1.9 ExpenseW recognitionW principle. Moderate 20-30
CT1.10 QualitativeW characteristics. Moderate 20-30
CT1.11 ExpenseW recognitionW principle. Moderate 20-25
CT1.12 CostW Constraint. Moderate 30-35
CT1.13 Rule-makingW Issues. Complex 20-25
CT1.14 ModelsWforW settingW GAAP. Simple 15-20
CT1.15 EconomicW consequences. Moderate 25-35
CT1.16 GAAPW andW economicW consequences. Moderate 25-35

Answers to Questions
W W

1. IfW aW company‘sWfinancialW performanceW isW measuredW accurately,W fairly,WandW onW aWtimelyWbasis,W theW right
managersWandW companiesW canWattractW investmentW capital.W UnreliableW andW irrelevantW informationW leads
toWpoorWcapitalWallocation,WwhichWadverselyWaffectsWtheWefficiencyWofWtheWsecuritiesWmarket.
LO:W1,WBloom:WK,WDifficulty:W Simple, WTime:W1-
3,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WCommunication
2. TheW objectiveW ofW generalW purposeW financialW reportingW isW toW provideW financialW informationW aboutW the
reportingW entityW thatW isW usefulWtoW presentW andW potentialW equityW investors,W lenders,W andW otherW creditors
inWmakingWdecisionsWaboutWprovidingWresourcesWtoWtheWentityWthroughWequityWinvestmentsWandWloansWor
otherWformsWofWcredit.WInformationWthatWisWdecision-usefulWtoWcapitalWprovidersW(investors)WmayWalsoWbe
usefulWtoWotherWusersWofWfinancialWreportingWwhoWareWnotWinvestors.
LO:W1,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAWBC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WDecisionWMaking

3. InvestorsW areW interestedW inW financialW reportingW becauseW itW providesW informationW thatW isW usefulW for
makingW decisionsW (referredW toW asW theW decision-usefulnessW approach).W WhenW makingW these
decisions,W investorsW areW interestedW inW assessingW theW company‘sW (1)W abilityW toW generateW netW cash
inflowsW andW (2)W management‘sW abilityW toW protectW andW enhanceW theW capitalW providers‘W investments.
FinancialW reportingW shouldW thereforeWhelpW investorsW assessW theW amounts,Wtiming,W andWuncertaintyWof
prospectiveW cashW inflowsW fromW dividendsW orW interest,W andW theW proceedsW fromW theW sale,W redemption,
orW maturityW ofW securitiesW orW loans.W ForW investorsW toW makeW theseW assessments,W theW economic
resourcesW ofW anW enterprise,W theW claimsW toW thoseW resources,W andW theW changesW inW themW mustW be
understood.
LO:W1,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WDecisionWMaking
4. AW commonW setW ofW financialW accountingW andW reportingW standardsW appliedW byW allW businessesW and
entitiesWshouldWproduceWfinancialWstatementsWwhichWareWreasonablyWcomparable.WWithoutWaWcommon
setW ofW standards,W eachW enterpriseW could,W andW would,W developW aW theoryW structureW andW setW of
practices,WresultingWinW noncomparabilityWamongW theWfinancialWstatementsWofW enterprises.
LO:W1,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WCommunication

5. TheW SECW hasW theW powerW toW prescribe,W inW whateverW detailW itW desires,W theW accountingW practicesW and
principlesW toW beW employedW byW companiesW thatW fallW withinW itsW jurisdiction.W BecauseW theW SECW receives
auditedWfinancialWstatementsWfromWnearlyWallWcompaniesWthatWissueWsecuritiesWtoWtheWpublicWorWareWlisted
onWstockWexchanges,WitWisWgreatlyWinterestedWinWtheWcontent,Waccuracy,WandWcredibilityWofWtheWstatements.
ForW manyW years,W theW SECW reliedW onW theW AICPAW toW regulateW theW professionW andW developW andW enforce
accountingW principles.W Lately,W theW SECW hasW assumedW aW moreW activeW roleW inW theW developmentW of

CopyrightW©W2022WWILEY Kieso,WIntermediateWAccounting,W18/e,WSolutionsWManua (ForW InstructorWUseWOnly) 5-1-3
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accountingW standards,WespeciallyW inW theWareaW ofW disclosureW requirements.W InW DecemberW1973,WinW ASR
No.W150,W theW SECWsaidW theW FASB‘sWstatementsWwouldW beW presumedW toW carryW substantialWauthoritative
supportW andW anythingW contraryWtoW themW toW lackW suchW support.W ItW therebyW supportsWtheW developmentW of
accountingWprinciplesWinWtheWprivateWsector.
LO:W1,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WCommunication
6. TheW explanationW shouldW noteW thatW generallyW acceptedW accountingW principlesW orW standardsW have
―substantialW authoritativeW support.‖W TheyW consistW ofW accountingW practices,W procedures,W concepts,
andW methodsW thatW areW recognizedW byW aW largeW majorityW ofW practicingW accountantsW asW wellW asW other
membersWofW theWbusinessWandWfinancialWcommunity.W StatementsWissuedWbyWtheWFinancialWAccounting
StandardsWBoardWconstituteW―substantialWauthoritativeWsupport.‖
LO:W1,WBloom:WK,WDifficulty:W Simple, W5-
10,WAACSB:WCommunication,WAICPAWBC:W None,WAICPAWAC:WReporting,WAICPAWPC:WCommunication
QuestionsWChapterW1W (Continued)
7. TheW FASBW AccountingW StandardsW CodificationW (Codification)W isW aW compilationW ofW allW GAAPW inW one
place.W ItsW purposeW isW toW integrateW andW synthesizeWexistingW GAAP,W notW toW createWnewWGAAP.W ItW creates
oneW levelW ofW GAAPW whichW isW consideredW authoritative.W TheW FASBW CodificationW ResearchW Systems
(CRS)WisWanWonlineWreal-timeWdatabaseWthatWprovidesWeasyWaccessWtoWtheWCodification.WTheWCodification
andW theW relatedW CRSWprovideW aWtopicallyWorganizedWstructureW thatW isWsubdividedW intoW topics,W subtopics,
sections,WandWparagraphs.
LO:W1,WBloom:WK,WDifficulty:WModerate,WTime:W5-
7,WAACSB:WCommunication,WAICPAWBC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WCommunication
8. ItW isW hopedW thatW theW CodificationW willW helpW usersW toW betterW understandW whatW GAAPW is.W IfW thisW occurs,
companiesW willWbeW moreW likelyW toW complyWwithW GAAPW andW theW timeW toW researchW accountingW issuesWwill
beW substantiallyWreduced.W InWaddition,W throughW theW electronicWweb-basedW format,WGAAPWcanW beW easily
updatedWwhichWwillWhelpWusersWstayWcurrent.
LO:W1,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WCommunication

9. AWconceptualWframeworkWisWaWcoherentWsystemWofW interrelatedWobjectivesWandWfundamentalsWthatWcan
leadWtoW consistentWstandardsWandWthatWprescribesWtheWnature,Wfunction,WandW limitsWofW financialWaccount-
ingWandWfinancialWstatements.W AWconceptualWframeworkW isW necessaryWforWfinancialW accountingWforWthe
followingWreasons:
(1)W ItWenablesWtheWFASBWtoWissueWmoreWusefulWandWconsistentWstandardsWinWtheWfuture.
(2)W NewWissuesWwillWbeWmoreWquicklyWsolvableWbyWreferenceWtoWanWexistingWframeworkWofW basicWtheory.
(3)W ItWincreasesWfinancialWstatementWusers‘WunderstandingWofWandWconfidenceWinWfinancialWreporting.
(4)W ItWenhancesWcomparabilityWamongWcompanies‘WfinancialWstatements.
LO:W2,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAWBC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WCommunication

1 0.W TheWobjectiveWofWfinancialWreportingW isWtoWprovideWfinancialWinformationWaboutWtheW reportingWentityWthat
isWusefulWtoWpresentWandWpotentialWequityWinvestors,Wlenders,WandWotherWcreditorsWinW makingW decisions
aboutWprovidingWresourcesWtoWtheWentity.
LO:W2,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WCommunication

1 1.W ―QualitativeW characteristicsW ofW accountingW information‖W areW thoseW characteristicsW thatW contributeW to
theWqualityWorWvalueWofW theW information.WTheW overridingWqualitativeWcharacteristicW ofW accountingW infor-
mationWisWusefulnessWforWdecision-making.
LO:W2,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WCommunication

1 2.W RelevanceW andW faithfulW representationW areW theW twoW fundamentalW qualitiesW ofW usefulW accounting
information.WForWinformationWtoWbeWrelevant,WitWshouldWbeW capableWofW makingWaWdifferenceWinWaWdecision
byW helpingW usersW toW formW predictionsW aboutW theW outcomesW ofW past,W present,W andWfutureW eventsW orW to

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confirmW orW correctW expectations.W FaithfulW representationW restsW onW whetherW theW numbersW and
descriptionsWmatchWwhatWreallyWexistedWorWhappened.
LO:W2,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WCommunication

QuestionsWChapterW1W (Continued)

1 3.W TheW conceptW ofW materialityW refersW toW theW relativeW significanceW ofW anW amount,W activity,W orW itemW to
informativeW disclosure,W properW presentationW ofW financialW position,W andW theW resultsW ofW operations.
MaterialityWhasWqualitativeWandWquantitativeWaspects;WbothWtheWnatureWofW theWitemWandWitsWrelativeWsize
enterWintoWitsWevaluation.

AnW accountingW misstatementW isW saidW toW beW materialW ifW knowledgeW ofW theW misstatementW couldW affect
theWdecisionsWofW theW averageWinformedW readerWofW theWfinancialWstatements.WFinancialWstatementsWare
misleadingWifW theyWomitWaWmaterialWfactWorWincludeWsoW manyWimmaterialWmattersWasWtoWbeWconfusing.WIn
theWexamination,WtheWauditorWconcentratesWeffortsWinW proportionWtoWdegreesWofWmaterialityWandWrelative
riskWandWdisregardsWimmaterialWitems.

TheW relevantW criteriaW forW assessingW materialityW willW dependW uponW theW circumstancesW andW theW nature
ofW theW itemW andW willW varyW greatlyW amongW companies.W ForW example,W anW errorW inW currentW assetsW or
currentW liabilitiesW willW beW moreW importantW forW aW companyW withW aW flowW ofW fundsW problemW thanW forW one
withWadequateWworkingWcapital.

TheW effectW uponW netW incomeW (orW earningsW perW share)W isW theW mostW commonlyW usedW measureW of
materiality.WThisWreflectsWtheWprimeWimportanceWattachedWtoWnetWincomeWbyWinvestorsWandWotherWusers
ofW theW statements.W TheW effectsW uponWassetsW andW equitiesW areW alsoW important,WasW areW misstatements
ofW individualW accountsW andW subtotalsW includedW inW theW financialW statements.W TheW FASBW defines
materialityW toW beW consistentW withW theW legalW conceptW ofW materiality,W asW establishedW inW theW securities
laws.W Specifically,W informationW isW materialW ―ifW thereW isW aW substantialW likelihoodW thatW theW omittedW or
misstatedW itemW wouldW haveWbeenW viewedW byWaW reasonableWresourceW providerW asWhavingW significantly
alteredWtheWtotalWmixWofW information.‖
ThereW areW noW rigidW standardsW orWguidelinesW forWassessingW materiality.W TheW lowerW boundW ofW materiality
hasW beenW variouslyW estimatedW atW 5%W ofW netW income,W butW theW determinationW willW varyW basedW uponW the
individualWcaseWandWmightWnotWfallWwithinW theseW limits.W CertainW items,WsuchWasWaWquestionableW loanW toWa
companyWofficer,W mayW beW consideredW materialWevenWwhenW minorWamountsW areW involved.W InW contrast,W a
largeW misclassificationW amongW expenseW accountsW mayW notW beW deemedW materialW ifW thereW isW no
misstatementWofWnetWincome.
LO:W2,WBloom:WC,WDifficulty:WSimple, WTime:W5-
7,WAACSB:WCommunication,WAICPAWBC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WDecisionWMaking
1 4.W TheWenhancingWcharacteristicsWareWcomparability,Wverifiability,Wtimeliness,WandWunderstandability.
EnhancingW qualitiesW areW qualitativeW characteristicsW thatW areW complementaryW toW theW fundamental
qualitativeW characteristics.W TheseW characteristicsW distinguishW moreW usefulW informationW fromW less
usefulWinformation.
LO:W2,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WCommunication
1 5.W InW providingW informationW toW usersW ofW financialW statements,W theW FASBW reliesW onW general-purpose
financialW statements.W TheW intentW ofW suchW statementsW isW toW provideW theW mostW usefulW information
possibleW atW minimalW costW toW variousW userW groups.W UnderlyingW theseW objectivesW isW theW notionW thatW a
userW needsW aW reasonableW knowledgeW ofW businessW andW financialW accountingW mattersW toW understand
theW informationW containedW inW financialW statements.W ThisW pointW isW important.W ItW meansW thatW inW the
preparationW ofW financialW statements,W aW levelW ofW reasonableW competenceW forW theW userW canW be
assumed;WthisWhasWanWimpactWonWtheWwayWandWtheWextentWtoWwhichWinformationWisWreported.
LO:W2,WBloom:WC,WDifficulty:WSimple, WTime:W3-
5,WAACSB:WCommunication,WAICPAWBC:WNone,WAICPAWAC:W AICPAWAC:WReporting,WAICPAWPC:WCommunication

CopyrightW©W2022WWILEY Kieso,WIntermediateWAccounting,W18/e,WSolutionsWManua (ForW InstructorWUseWOnly) 5-1-5
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1 6.W ComparabilityW facilitatesW comparisonsW betweenW informationW aboutW twoW differentW enterprisesW atW a
particularW pointW inW time.W Consistency,W aW typeW ofW comparability,W facilitatesW comparisonsW between
informationWaboutWtheWsameWenterpriseWatWtwoWdifferentWpointsWinWtime.
LO:W2,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WCommunication
QuestionsWChapterW1W (Continued)

1 7.W TheW accountingW literatureW containsW manyW termsW thatW haveW specificW meanings.W SomeW ofW theseW terms
haveWbeenWinWuseWforWaWlongWtime,WandWtheirWmeaningsWhaveWchangedWoverWtime.WSinceWtheWelementsWof
financialW statementsW areW theW buildingW blocksW withW whichW theW statementsW areW constructed,W itW is
necessaryWtoWdevelopWaWbasicWdefinitionalWframeworkWforWthem.
LO:W2,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WCommunication
1 8.W DistributionsW toW ownersWdifferWfromWexpensesWandWlossesWinWthatWtheyWrepresentWtransfersWtoW owners,
andW theyW doW notW ariseW fromW activitiesW intendedW toW produceW income.W ExpensesW differW fromW lossesW in
thatW theyW ariseW fromWtheW entity‘sW ongoingW majorW orWcentralW operations.W LossesW ariseW fromW peripheral
orWincidentalWtransactions.
LO:W2,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WCommunication
1 9.W InvestmentsW byW ownersW differWfromW revenuesW andW gainsW inW thatW theyW representW transfersW byW owners
toW theW entity,W andW theyW doW notW ariseW fromW activitiesW intendedW toW produceW income.W RevenuesW differ
fromWgainsWinWthatWtheyWariseWfromWtheWentity‘sWongoingWmajorWorWcentralWoperations.WGainsWariseWfrom
peripheralWorWincidentalWtransactions.
LO:W2,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WNone
2 0.W TheWfourWbasicWassumptionsWthatWunderlieWtheWfinancialWaccountingWstructureWare:
(1)W TheWeconomicWentityWassumption.
(2)W TheWgoingWconcernWassumption.
(3)W TheWmonetaryWunitWassumption.
(4)W TheWperiodicityWassumption.
LO:W3,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WCommunication

2 1.W (a)W InW accounting,W itW isW generallyW agreedW thatW anyW measuresW ofW theW successW ofW anW enterpriseW for
periodsW lessW thanW itsW totalW lifeW areW atW bestW provisionalW andW subjectW toW correction.W Measurement
ofW progressW andW statusW forW arbitraryW timeW periodsW isW aW practicalW necessityW toW serveW thoseW who
mustW makeW decisions.W ItW isW notW theW resultW ofW postulatingW specificW timeW periodsW asW measurable
segmentsWofWtotalWlife.
(b)W TheW practiceW ofW periodicW measurementW hasW ledW toW manyW ofW theW mostW difficultW accountingW prob-
lems,W suchW asW inventoryW pricing,W depreciationW ofW long-termW assets,W andW theW necessityW for
revenueW recognitionW tests.W TheW accrualW systemW callsW forW associatingW relatedW revenuesW and
expenses.W ThisW becomesW difficultW forW anW arbitraryW timeW periodW withW incompleteW transactionsW in
processW atW bothW theW beginningW andW theW endW ofW theW period.W ManyW accountingW practicesW suchW as
adjustingW entriesW orW theW reportingW ofW correctionsW ofW priorW periodsW resultW directlyW fromW effortsW to
makeW eachW period‘sW calculationsW asW accurateW asW possibleW andW yetW recognizingW thatW theyW are
onlyWprovisional.
LO:W3,WBloom:WC,WDifficulty:WSimple, WTime:W5-
7,WAACSB:WCommunication,WAICPAWBC:WNone,WAICPAWAC:W Measurement,WReporting,W AICPAWPC:W None

2 2.W TheW monetaryW unitW assumptionW assumesW thatW theW unitW ofW measureW (theW dollar)W remainsW reasonably
stableW soW thatW dollarsW ofW differentW yearsW canW beW addedW withoutW anyW adjustment.W WhenW theW valueW of
theWdollarWfluctuatesWgreatlyWoverWtime,WtheWmonetaryWunitWassumptionWlosesWitsWvalidity.

TheWFASBW inWConceptWNo.W 5W indicatedWthatWitWexpectsWtheWdollarWunadjustedWforWinflationWorWdeflation
toW beW usedW toW measureW itemsW recognizedW inW financialW statements.W OnlyW ifW circumstancesW change
dramaticallyWwillWtheWFASBWconsiderWaWmoreWstableWmeasurementWunit.
LO:W3,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:WReporting,WAICPAWPC:WNone

5-1-6 CopyrightW©W2022WWILEY Kieso,WIntermediateWAccounting,W18/e,WSolutionsWManua (ForW InstructorWUseWOnly)
l

,W

QuestionsWChapterW1W (Continued)

2 3.W FairW valueW isW definedW asW ―theW priceW thatW wouldW beW receivedW toW sellW anW assetW orW paidW toW transferW a
liabilityW inW anW orderlyW transactionW betweenW marketW participantsW atW theW measurementW date.‖W FairW value
is,Wtherefore,WaWmarket-basedWmeasure.
LO:W3,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:W Measurement,WReporting,W AICPAWPC:W AICPAWPC:WNone

2 4.W TheW fairW valueW hierarchyW providesW insightW intoW theW priorityW ofW valuationW techniquesW thatW areW usedW to
determineWfairWvalue.WTheWfairWvalueWhierarchyWisWdividedWintoWthreeWbroadWlevels.

FairWValueWHierarchy

LevelW1:W ObservableWinputsWthatWreflectWquotedWpricesWfor LeastWSubjective
identicalWassetsWorWliabilitiesWinWactiveWmarkets.

LevelW2:W InputsW otherW thanW quotedW pricesW includedW inW LevelW 1W that
areW observableW forW theW assetW orW liabilityW eitherW directlyW or
throughWcorroborationWwithWobservableWdata.

LevelW3:W UnobservableW inputsW (forW example,W aW company‘sW own MostWSubjective
dataWorWassumptions).

AsW indicated,W LevelW 1W isW theW mostW reliableW becauseW itW isW basedW onW quotedW prices,W suchW asW aW closing
stockW priceW inW theW WallW StreetW Journal.W LevelW 2W isW theW nextW mostW reliableW andW wouldW relyW on
evaluatingW similarW assetsW orW liabilitiesW inW activeW markets.W AtW theW least-reliableW level,W LevelW 3,W much
judgmentW isW neededW basedW onW theW bestW informationW availableW toW arriveW atW aW relevantW and
representationallyWfaithfulWfairWvalueWmeasurement.
LO:W3,WBloom:WK,WDifficulty:W Simple, WTime:W5-
7,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:W Measurement,WReporting,W AICPAWPC:WNone
2 5.W TheW revenueW recognitionW principleW requiresW thatW companiesW recognizeW revenueW inW theW accounting
periodW inW whichW theW performanceW obligationW isW satisfied.W InW theW caseW ofW services,W revenueW is
recognizedW whenW theW servicesW areW performed.W InW theW caseW ofW sellingW aW product,W theW performance
obligationW isW metW whenW theW productW isW delivered.W CompaniesW followW aW five-stepW processW toW analyze
revenueW arrangementsW toW determineW whenW revenueW shouldW beW recognized:W (1)W IdentifyW the
contract(s)WwithWtheW customer;W(2)WIdentifyWtheW separateWperformanceWobligationsWinWtheWcontract;W(3)
DetermineW theW transactionW price;W (4)W AllocateW theW transactionW priceW toW separateW performance
obligations,Wand;W(5)WRecognizeWrevenueWwhenWeachWperformanceWobligationWisWsatisfied.
LO:W3,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:W Measurement,WReporting,W AICPAWPC:WNone
2 6.W AWperformanceWobligationWisWaWpromiseWtoWdeliverWaWproductWorWprovideWaWserviceWtoWaWcustomer.W The
revenueW recognitionWprincipleW requiresWthatW companiesW recognizeW revenueW inWtheW accountingWperiod
inW whichW theW performanceW obligationW isW satisfied.W InW theW caseW ofW services,W revenueW isW recognized
whenW theW servicesW areW performed.W InW theW caseW ofW sellingW aW product,W theW performanceW obligationW is
metWwhenWtheWproductWisWdelivered.
LO:W3,WBloom:WK,WDifficulty:W Simple, WTime:W3-
5,WAACSB:WCommunication,WAICPAW BC:WNone,WAICPAWAC:W Measurement,WReporting,W AICPAWPC:WNone

CopyrightW©W2022WWILEY Kieso,WIntermediateWAccounting,W18/e,WSolutionsWManua (ForW InstructorWUseWOnly) 5-1-7
l

,W

QuestionsWChapterW1W(Continued)

2 7.W TheWfiveWstepsWinWtheWrevenueWrecognitionWprocessWare:

StepW1W IdentifyW theW contract(s)W withW theW customer.W AW contractW isW anW agreementW betweenW two
partiesWthatWcreatesWenforceableWrightsWorWobligations.

StepW2W IdentifyW theW separateW performanceW obligationsW inW theW contract.W AW performance
obligationWisWeitherWaWpromiseWtoWprovideWaWserviceWorWdeliverWaWproduct,WorWboth.

StepW3.W DetermineW theW transactionW price.W TheW transactionW priceW isW theW amountW ofW consideration
thatW aW companyW expectsW toW receiveW fromW aW customerW inW exchangeW forW transferringW aW good
orWservice.

StepW4.W AllocateW theW transactionW priceW toW separateW performanceW obligations.W ThisW isW usually
doneWbyWestimatingWtheWvalueWofWconsiderationWattributableWtoWeachWproductWorW service.
StepW5.W RecognizeW revenueW whenW eachW performanceW obligationW isW satisfied.W ThisW occurs
whenWtheWserviceWisWprovidedWorWtheWproductWisWdelivered.

NoteW thatW manyW revenueW transactionsW poseW fewW problemsW becauseW theW transactionW isW initiatedW and
completedWatWtheWsameWtime.
LO:W3,WBloom:WC,WDifficulty:WSimple, WTime:W5-
7,WAACSB:WCommunication,WAICPAWBC:WNone,WAICPAWAC:W Measurement,WReporting,W AICPAWPC:W None
2 8.W RevenuesW areW recognizedW whenW aW performanceW obligationW isW satisfied–inW theW caseW ofW services,
revenueW isW recognizedW whenW theW servicesW areW performed.W Therefore,W revenueW forW SelaneW Eatery
shouldWbeWrecognizedWatWtheWtimeWtheWluncheonWisWserved.
LO:W3,WBloom:WAN,WDifficulty:WSimple,WTime:W3-
5,WAnalytic,WAICPAWBC:WNone,WAICPAWAC:WMeasurement,WReporting,WAICPAWPC:WNone
2 9.W TheW causeW andW effectW relationshipW canW seldomW beW conclusivelyW demonstrated,W butW manyW costs
appearW toW beW relatedW toW particularW revenues,W andW recognizingW themW asW expensesW accompany
recognitionW ofW theW revenue.W ExamplesW ofW expensesW thatW areW recognizedW byW associatingW causeW and
effectWareWsalesWcommissionsWandWtheWcostWofWproductsWsoldWorWservicesWprovided.
SystematicW andW rationalW allocationW meansW thatW inW theW absenceW ofW aW directW meansW ofW associating
causeW andW effect,W andW whereW theW assetW providesW benefitsW forW severalW periods,W itsW costW shouldW be
allocatedW toW theW periodsW inW aW systematicW andW rationalW manner.W ExamplesW ofW expensesW thatW are
recognizedW inW aW systematicW andW rationalW mannerW areW depreciationW ofW plantW assets,W amortizationW of
intangibleWassets,WandWallocationWofWrentWandWinsurance.

SomeW costsW areW immediatelyW expensedW becauseW theW costsW haveW noW discernibleW futureW benefitsW or
theW allocationW amongW severalW accountingW periodsW isW notW consideredW toW serveW anyW usefulW purpose.
ExamplesW includeW officers‘W salaries,W mostW sellingW costs,W amountsW paidW toW settleW lawsuits,W andW costs
ofW resourcesWusedWinWunsuccessfulWefforts.
LO:W3,WBloom:WAN,WDifficulty:WSimple,WTime:W5-
7,WAnalytic,WAICPAWBC:WNone,WAICPAWAC:WMeasurement,WReporting,WAICPAWPC:WNone

3 0.W (a)W ToWbeW recognizedW inW theWmainWbodyWofWfinancialWstatements,WanW itemWmustWmeetWtheWdefinitionWof
anWelement.WInWaddition,WtheWitemWmustWhaveWbeenWmeasured,WrecordedWinWtheWbooks,WandWpassed
throughWtheWdouble-entryWsystemWofWaccounting.
(b)W InformationW providedW inW theW notesW toW theW financialW statementsW amplifiesW orW explainsW theW items
presentedWinW theW mainWbodyWofW theW statementsWandWisWessentialWtoW anWunderstandingWofW theW per-
formanceW andW positionW ofW theW enterprise.W InformationW inW theW notesW doesW notW haveW toW beW quanti-
fiable,WnorWdoesWitWneedWtoWqualifyWasWanWelement.
(c)W SupplementaryWinformationWincludesWinformationWthatWpresentsWaWdifferentWperspectiveWfromWthat
adoptedWinWtheWfinancialWstatements.WItWalsoWincludesWmanagement‘sWexplanationWofW theWfinancial
informationWandWaWdiscussionWofWtheWsignificanceWofWthatWinformation.
LO:W4,WBloom:WC,WDifficulty:WSimple, WTime:W5-
7,WAACSB:WCommunication,WAICPAWBC:WNone,WAICPAWAC:W Measurement,WReporting,W AICPAWPC:W None

5-1-8 CopyrightW©W2022WWILEY Kieso,WIntermediateWAccounting,W18/e,WSolutionsWManua (ForW InstructorWUseWOnly)
l

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Exam (elaborations)

Test Bank for Intermediate Accounting 18th Edition by Kieso, Weygandt and Warfield, ISBN: 9781119790976, All 23 Chapters Covered, Verified Latest Edition

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