Solution Manual For Financial Accounting Theory
ii ii ii ii ii
ii 7th Edition by William R. Scott, Patricia O'Brien
ii ii ii ii ii ii ii
ii Chapters 1 - 13, Complete
ii ii ii ii
, Contents
Chapter ii1 Introduction ............................................................................................. 1
Chapter ii2 Accounting iiUnder iiIdeal iiConditions ..................................................... 7
Chapter ii3 The iiDecision iiUsefulness iiApproach iito iiFinancial iiReporting ................ 68
Chapter ii4 Efficient iiSecurities iiMarkets .................................................................. 129
Chapter ii5 The iiValue iiRelevance iiof iiAccounting iiInformation ............................... 153
Chapter ii6 The iiMeasurement iiApproach iito iiDecision iiUsefulness .......................... 194
Chapter ii7 Measurement iiApplications .................................................................... 237
Chapter ii8 The iiEfficient iiContracting iiApproach iito iiDecision iiUsefulness .............. 285
Chapter ii9 An iiAnalysis iiof iiConflict ..................................................................... 321
Chapter ii10 ii iiExecutive iiCompensation ................................................................... 371
Chapter ii11 ii iiEarnings iiManagement ....................................................................... 425
Chapter ii12 ii iiStandard iiSetting: iiEconomic iiIssues................................................... 487
Chapter ii13 ii iiStandard iiSetting: iiPolitical iiIssues ..................................................... 527
Pearson iiCanada iiInc.
ii
,Scott, iiFinancial iiAccounting iiTheory Instructor’s iiSolutions iiManual iiChapter
ii1
CHAPTER ii1
ii INTRODUCTIO
N
1.1 The iiObjective iiof iiThis iiBook
1.2 Some iiHistorical iiPerspective
1.3 The ii2007-2008 iiMarket iiMeltdowns
1.4 Efficient iiContracting
1.5 A iiNote iion iiEthical iiBehaviour
1.6 Rules-Based iiv. iiPrinciples-Based iiAccounting iiStandards
1.7 The iiComplexity iiof iiInformation iiin iiFinancial iiAccounting iiand iiReporting
1.8 The iiRole iiof iiAccounting iiResearch
1.9 The iiImportance iiof iiInformation iiAsymmetry
1.10 The iiFundamental iiProblem iiof iiFinancial iiAccounting iiTheory
1.11 Regulation iias iia iiReaction iito iithe iiFundamental iiProblem
1.12 The iiOrganization iiof iiThis iiBook
1.12.1 Ideal iiConditions
1.12.2 Adverse iiSelection
1.12.3 Moral iiHazard
1.12.4 Standard iiSetting
1.12.5 The iiProcess iiof iiStandard iiSetting
1.13 Relevance iiof iiFinancial iiAccounting iiTheory iito iiAccounting iiPractice
, Scott, iiFinancial iiAccounting iiTheory Instructor’s iiSolutions iiManual iiChapter
ii1
LEARNING iiOBJECTIVES iiAND iiSUGGESTED iiTEACHING iiAPPROACHES
1. The iiBroad iiOutline iiof iithe iiBook
I iiuse iiFigure ii1.1 iias iia iitemplate iito iidescribe iithe iibroad iioutline iiof iithe iibook.
ii Since iithe iistudents iitypically iihave iinot iihad iia iichance iito iiread iiChapter ii1 iiin iithe
ii first iicourseisession, iiI iistick iifairly iiclosely iito iithe iichapter iimaterial.
The iimajor iipoints iiI iidiscuss iiare:
• Accounting iiin iian iiideal iisetting. iiHere, iipresent-value-based
ii accounting iiis iinatural. iiI iigo iiover iithe iiideal iiconditions iineeded iifor
ii suchia iibasis iiof iiaccounting iito iibe iifeasible, iibut iido iinot iigo iiinto
ii much iidetail iibecause iithis iitopic iiis iicovered iiin iigreater iidepth iiin
ii Chapter ii2.
• An iiintroduction iito iithe iiconcept iiof iiinformation iiasymmetry iiand
ii resulting iiproblems iiof iiadverse iiselection iiand iimoral iihazard.
ii These iiproblems iiare iibasic iito iithe iibook iiand iiI iifeel iiit iiis iidesirable
ii for iithe iistudents iito iihave iia ii“first iigo” iiat iithem iiat iithis iipoint. iiI
ii concentrate iion iithe iiintuition iiunderlying iithe iitwo iiproblems. iiFor
ii example, iiadverse iiselection iican iibe iiillustrated iiby iiasking iiwho
ii would iibe iifirst iiin iiline iito iipurchase iilife iiinsurance iiif iithere iiwas iino
ii medical iiexamination, iior iiwhat iiquality iiof iiused iicars iiare iilikely iito
ii be iibrought iito iimarket. iiFor iimoral iihazard iiI iitry iito iipin iithem iidown
ii on iihow iihard iithey iiwould iiwork iiinithis iicourse iiif iithere iiwere iino
ii exams.
• The iienvironment iiin iiwhich iifinancial iiaccounting iiand iireporting
ii operates. iiMy iimain iigoal iiat iithis iipoint iiis iithat iithe iistudents iido iinot
ii takeithis iienvironment iifor iigranted. iiI iidiscuss iithe iiprocedures iiof
ii standard iisetting iibriefly iiand iipoint iiout iithat iithis iiis iireally iia
ii process iiof iiregulation. iiIn iithe iipast, iithere iihave iibeen iiwell-known
ii cases iiof iideregulation, iisuch iias iiairlines, iitrucking, iifinancial
ii ii ii ii ii
ii 7th Edition by William R. Scott, Patricia O'Brien
ii ii ii ii ii ii ii
ii Chapters 1 - 13, Complete
ii ii ii ii
, Contents
Chapter ii1 Introduction ............................................................................................. 1
Chapter ii2 Accounting iiUnder iiIdeal iiConditions ..................................................... 7
Chapter ii3 The iiDecision iiUsefulness iiApproach iito iiFinancial iiReporting ................ 68
Chapter ii4 Efficient iiSecurities iiMarkets .................................................................. 129
Chapter ii5 The iiValue iiRelevance iiof iiAccounting iiInformation ............................... 153
Chapter ii6 The iiMeasurement iiApproach iito iiDecision iiUsefulness .......................... 194
Chapter ii7 Measurement iiApplications .................................................................... 237
Chapter ii8 The iiEfficient iiContracting iiApproach iito iiDecision iiUsefulness .............. 285
Chapter ii9 An iiAnalysis iiof iiConflict ..................................................................... 321
Chapter ii10 ii iiExecutive iiCompensation ................................................................... 371
Chapter ii11 ii iiEarnings iiManagement ....................................................................... 425
Chapter ii12 ii iiStandard iiSetting: iiEconomic iiIssues................................................... 487
Chapter ii13 ii iiStandard iiSetting: iiPolitical iiIssues ..................................................... 527
Pearson iiCanada iiInc.
ii
,Scott, iiFinancial iiAccounting iiTheory Instructor’s iiSolutions iiManual iiChapter
ii1
CHAPTER ii1
ii INTRODUCTIO
N
1.1 The iiObjective iiof iiThis iiBook
1.2 Some iiHistorical iiPerspective
1.3 The ii2007-2008 iiMarket iiMeltdowns
1.4 Efficient iiContracting
1.5 A iiNote iion iiEthical iiBehaviour
1.6 Rules-Based iiv. iiPrinciples-Based iiAccounting iiStandards
1.7 The iiComplexity iiof iiInformation iiin iiFinancial iiAccounting iiand iiReporting
1.8 The iiRole iiof iiAccounting iiResearch
1.9 The iiImportance iiof iiInformation iiAsymmetry
1.10 The iiFundamental iiProblem iiof iiFinancial iiAccounting iiTheory
1.11 Regulation iias iia iiReaction iito iithe iiFundamental iiProblem
1.12 The iiOrganization iiof iiThis iiBook
1.12.1 Ideal iiConditions
1.12.2 Adverse iiSelection
1.12.3 Moral iiHazard
1.12.4 Standard iiSetting
1.12.5 The iiProcess iiof iiStandard iiSetting
1.13 Relevance iiof iiFinancial iiAccounting iiTheory iito iiAccounting iiPractice
, Scott, iiFinancial iiAccounting iiTheory Instructor’s iiSolutions iiManual iiChapter
ii1
LEARNING iiOBJECTIVES iiAND iiSUGGESTED iiTEACHING iiAPPROACHES
1. The iiBroad iiOutline iiof iithe iiBook
I iiuse iiFigure ii1.1 iias iia iitemplate iito iidescribe iithe iibroad iioutline iiof iithe iibook.
ii Since iithe iistudents iitypically iihave iinot iihad iia iichance iito iiread iiChapter ii1 iiin iithe
ii first iicourseisession, iiI iistick iifairly iiclosely iito iithe iichapter iimaterial.
The iimajor iipoints iiI iidiscuss iiare:
• Accounting iiin iian iiideal iisetting. iiHere, iipresent-value-based
ii accounting iiis iinatural. iiI iigo iiover iithe iiideal iiconditions iineeded iifor
ii suchia iibasis iiof iiaccounting iito iibe iifeasible, iibut iido iinot iigo iiinto
ii much iidetail iibecause iithis iitopic iiis iicovered iiin iigreater iidepth iiin
ii Chapter ii2.
• An iiintroduction iito iithe iiconcept iiof iiinformation iiasymmetry iiand
ii resulting iiproblems iiof iiadverse iiselection iiand iimoral iihazard.
ii These iiproblems iiare iibasic iito iithe iibook iiand iiI iifeel iiit iiis iidesirable
ii for iithe iistudents iito iihave iia ii“first iigo” iiat iithem iiat iithis iipoint. iiI
ii concentrate iion iithe iiintuition iiunderlying iithe iitwo iiproblems. iiFor
ii example, iiadverse iiselection iican iibe iiillustrated iiby iiasking iiwho
ii would iibe iifirst iiin iiline iito iipurchase iilife iiinsurance iiif iithere iiwas iino
ii medical iiexamination, iior iiwhat iiquality iiof iiused iicars iiare iilikely iito
ii be iibrought iito iimarket. iiFor iimoral iihazard iiI iitry iito iipin iithem iidown
ii on iihow iihard iithey iiwould iiwork iiinithis iicourse iiif iithere iiwere iino
ii exams.
• The iienvironment iiin iiwhich iifinancial iiaccounting iiand iireporting
ii operates. iiMy iimain iigoal iiat iithis iipoint iiis iithat iithe iistudents iido iinot
ii takeithis iienvironment iifor iigranted. iiI iidiscuss iithe iiprocedures iiof
ii standard iisetting iibriefly iiand iipoint iiout iithat iithis iiis iireally iia
ii process iiof iiregulation. iiIn iithe iipast, iithere iihave iibeen iiwell-known
ii cases iiof iideregulation, iisuch iias iiairlines, iitrucking, iifinancial
