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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

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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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Uploaded on November 10, 2024
Number of pages 1588
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intermediate accounting
solution manual for intermediate accounting 3rd ed

Institution Intermediate accounting
Course Intermediate accounting

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CHAPTER 1 xx

The Financial Reporting Environment
xx xx xx

xx 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, the
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management report and press releases. Of course, the basic financial statements and footnotes
xx xx xx xx xx xx xx xx xx xx xx xx xx

are included in the term financial information. The basic financial statements are: the balance
xx xx xx xx xx xx xx xx xx xx xx xx xx xx

sheet (also referred to as the statement of financial position), the statement of comprehensive
xx xx x x xx xx xx xx xx xx xx xx xx xx xx

income (also referred to as the statement of net income and the statement of comprehensive
xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx

income), the statement of cash flows, and the statement of shareholders‘ equity. Financial
xx xx xx xx xx xx xx xx xx xx xx xx xx

information is not synonymous with the term financial statements because the financial
xx xx xx xx xx xx xx xx xx xx xx xx

statements are a subset of the different types of financial information provided.
xx xx xx xx xx xx xx xx xx xx xx xx

Q1-2 The purpose of generating financial statements is to provide useful information to users to
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evaluate economic entities and make efficient resource allocation decisions based on the risks
xx xx xx xx xx xx xx xx xx xx xx xx xx

and returns of a particular investment. The Financial Accounting Standards Board (FASB)
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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.
xx xx xx xx xx xx xx xx xx xx xx xx

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
xx xx xx xx xx xx xx xx xx xx xx xx xx xx

representative information about the economic performance and financial position of a
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company. This information is provided in the financial statements.
xx xx xx xx xx xx xx xx xx

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 must
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be an independent party and cannot be employees of the company they are auditing. External
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auditors provide a significant amount of credibility to the financial statements.
xx xx xx xx xx xx xx xx xx xx xx

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.
xx xx xx xx xx xx xx xx xx xx xx xx

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. The
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standards encourage transparent and truthful reporting.
xx xx xx xx xx xx

,1 -2 xx xx x x SO L UT I O N S
xx xx xx xx xx xx xx xx x x M AN UAL
xx xx xx xx xx x x FO R xx xx x x IN TERMED IA TE
xx xx xx xx xx xx xx xx xx xx xx x x AC C xx xx

O U N T ING
xx xx xx xx xx xx

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.
xx xx xx xx xx xx xx xx xx xx xx xx xx xx

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.
xx xx xx xx xx xx

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.
xx xx xx xx xx xx xx

Q1-9 Yes, the promulgation of financial accounting standards is a political process. There are
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several groups that influence the standard setting process. The standard setting process is a
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political process that is affected by the impact of several lobbying groups. The government,
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through the SEC, influences accounting standards. The SEC has the authority to issue
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accounting standards but has assigned this responsibility to the private sector. Nonetheless,
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the SEC can exert pressure on the FASB to issue accounting standards and veto the standards
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promulgated by the FASB. Auditing firms, the corporate sector, creditors, financial analysts,
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the financial community, accounting organizations, industry groups, and investors can
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influence the FASB by written comments about Exposure Drafts and participation in public
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meetings and public roundtables regarding a proposed financial reporting standard.
xx xx xx xx xx xx xx xx xx xx

Q1-10 A principles-based standard is consistent with a theoretical framework. In contrast, a
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rules-based standard does not necessarily rely on a consistent theoretical framework. Rather,
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it contains more specific and prescriptive rules.
xx xx xx xx xx xx xx

Q1-11 Recently, the FASB has taken an asset/liability approach in setting standards. With this
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approach, a transaction is recorded based on whether an asset or liability is created. Another
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trend has been the movement toward the use of fair value measurements as an alternative to
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historical cost. FASB has also focused on the promulgation of principles-based standards
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instead of rules-based standards.
xx xx xx xx

Brief Exercises xx

xx Solution to BE1-1 xx xx

General-purpose financial statements provide general financial information about an entity that xx xx xx xx xx xx xx xx xx xx

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, and
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other creditors as the primary users of the financial statements.
xx xx xx xx xx xx xx xx xx xx

© 2021 Pearson Education, Inc.
xx xx xx xx

, C H AP T E R 1
xx xx xx xx xx xx x x x x THE
xx xx x x FIN ANC I AL
xx xx xx xx xx xx xx xx x x RE PO RT IN G
xx xx xx xx xx xx xx xx x x EN V xx xx 1 -3
xx xx x x

IR ON MENT
xx xx xx xx xx xx xx xx

Solution to BE1-2 xx xx

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
xx xx xx xx xx xx xx xx xx xx xx x x

information; 2.Economic entity; 3. User groups and 4. Legal, economic, political, and social
xx xx xx xx xx xx xx xx xx xx xx xx xx

environment
xx

Solution to BE1-3 xx xx

Financial Statement Users xx xx

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

xx xx xx

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

xx 1 Creditors
xx money to the company.xx xx xx xx

5. Use financial information to review and
x x xx xx xx xx xx

xx 5 Financial Analysts
xx xx
analyze reported results of the companies they
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cover and make investment recommendations.
xx xx xx xx xx

xx 8 Employees and Labor
xx xx xx

xx Unions 8. Use financial information during negotiation of
xx xx xx xx xx

new labor agreements and compensation
xx xx xx xx xx

xx 2 Suppliers and Customers
xx xx xx
contracts. xx

2. Use financial statements to determine whether to
xx xx xx xx xx xx

xx 7 Government Agencies
xx xx conduct business or purchase products from a
xx xx xx xx xx xx xx

company. xx

xx 3 Competitors
xx
7. Review the financial statements of publicly traded
x x xx xx xx xx xx xx

companies for a variety of reasons that are in the
xx xx xx xx xx xx xx xx xx xx

xx 4 External Auditors
xx xx

public interest. xx xx

xx 6 Internal Auditors
xx xx
3. Use financial information to determine their market
xx xx xx xx xx xx

position relative to the reporting entity and to
xx xx xx xx xx xx xx xx

xx 11 Regulatory Bodies
xx xx attempt to identify future strategies of the
xx xx xx xx xx xx xx

reporting entity. xx xx

xx 9 Professional Organizations
xx xx
4. Are independent of the company andxx xx xx xx xx

responsible for ensuring that management
xx xx xx xx xx

prepares and issues financial statements that
xx xx xx xx xx xx

comply with accounting standards and fairly
xx xx xx xx xx xx

present the financial position and economic
xx xx xx xx xx xx

performance of the company.
xx xx xx xx

6. Are employees of the company serving in an
x x xx xx xx xx xx xx xx

advisory role to management. They provide
xx xx xx xx xx xx

information to management regarding the
xx xx xx xx xx

company‘s operations and proper functioning of its
xx xx xx xx xx xx xx

internal controls. xx xx

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

auditing standard setting processes.
xx xx xx xx

9. Support accounting professionals throughout their xx xx xx xx

© 2021 Pearson Education, Inc.
xx xx xx xx

, 1 -4 xx xx x x SO L UT I O N S
xx xx xx xx xx xx xx xx x x M AN UAL
xx xx xx xx xx x x FO Rxx xx x x IN TERMED IA TE
xx xx xx xx xx xx xx xx xx xx xx x x AC C
xx xx

O U N T ING
xx xx xx xx xx xx

careers by providing training, professional skills
xx xx xx xx xx

development, and other resources.
xx xx xx xx

Solution to BE1-4 xx xx

Financial statement users and why each would use the financial statements are summarized
xx xx xx xx xx xx xx xx xx xx xx xx

below:
xx

1. Equity investors - Equity investors buy stock in the company, that is, they purchase
xx xx xx xx xx xx xx xx xx xx xx xx xx

a percentage of the company itself. The financial statements help them make
xx xx xx xx xx xx xx xx xx xx xx xx

investment decisions.
xx xx

2. Creditors - Creditors loan money to the company. The financial statements help them
xx xx xx xx xx xx xx xx xx xx xx xx

assess the creditworthiness of the company, and whether principal and interest will be
xx xx xx xx xx xx xx xx xx xx xx xx xx

repaid. xx

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

position relative to the reporting entity.
xx xx xx xx xx xx

© 2021 Pearson Education, Inc.
xx xx xx xx

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