CHAPTER 1
ACCOUNTING: INFORMATION FOR DECISION MAKING
OVERVIEW OF BRIEF EXERCISES, EXERCISES, AND CRITICAL THINKING
CASES
Brief Learning
Exercises Topic Objectives Skills
B. Ex. 1.1 Users of accounting information 1-1, 1-3, 1-5 Analysis
B. Ex. 1.2 Components of internal control 1-2, 1-5 Analysis
B. Ex. 1.3 Inexact or approximate measures 1-3, 1-4 Analysis, judgment
B. Ex. 1.4 Standards for the preparation of 1-5, 1-6 Analysis
accounting information
B. Ex. 1.5 FASB conceptual framework 1-1, 1-3, 1-5, 1-6 Analysis
B. Ex. 1.6 PCAOB 1-5, 1-6 Analysis, research
B. Ex. 1.7 COSO 1-2, 1-5, 1-6 Analysis, ethics
B. Ex. 1.8 Professional certifications in accounting 1-7,1- 8 Analysis
B. Ex. 1.9 AICPA code of professional conduct 1-5, 1-7 Analysis, ethics
B. Ex. 1.10 Personal benefits of accounting skills 1-1 Analysis
Learning
Exercises Topic Objectives Skills
1.1 You as a user of accounting information 1-1 Analysis, judgment
1.2 Real World: Boeing Company, 1-3, 1-4 Analysis, research
California Public Employees
Retirement System, China Airlines
Users of accounting information
1.3 What is financial reporting? 1-3 Analysis, judgment
1.4 Generally accepted accounting principles 1-6 Analysis
1.5 Accounting organizations 1-6 Analysis, communication
1.6 Investment return 1-3 Analysis
1.7 Accounting terminology 1-3-1-5, 1-7 Analysis
1.8 Accounting organizations 1-6 Analysis
1.9 Financial and management accounting 1-3, 1-4 Judgment
1.10 Management accounting information 1-4 Communication, judgment
1.11 Accounting organizations 1-6 Analysis, judgment
1.12 Purpose of an audit 1-5 Analysis, judgment
1.13 Audits of financial statements 1-5 Analysis
1.14 Ethics and professional judgment 1-7 Analysis,
communication,
1.15 Careers in accounting 1-8 judgment
Judgment,
1.16 Home Depot, Inc. general information 1-1, 1-3, 1-5 communication
Analysis, judgment,
research
Due to the introductory nature of this chapter and the conceptual nature of its contents, no items labeled
Problems are included. In all future chapters you will find a series of Problems that generally include
computations, are more complex, and generally require more time to complete than Exercises.
Critical Thinking Cases
1.1 Real World: Fannie Mae 1-5 Analysis, ethics,
Reliability of financial statements judgment
1.2 Objectives of financial accounting 1-3 Analysis,
communication, group,
judgment
1.3 Accounting systems 1-2 Analysis, communication
1.4 Codes of ethics (Ethics, fraud, and 1-7 Analysis,
corporate governance) communication,
judgment
1.5 Accessing information on the Internet 1-6, 1-7 Research, technology
(Internet)
Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
,DESCRIPTIONS OF CRITICAL THINKING CASES
Below are brief descriptions of each case. These descriptions are accompanied by the estimated time (in
minutes) required for completion and by a difficulty rating.
Critical Thinking Cases
1.1 Fannie Mae 15 Easy
Reliability of Financial Statements
This case explores the general subject of integrity in financial statements—what
causes potential investors to be able to rely on information and what precludes
management from portraying a company in more positive terms than it should.
1.2 Objectives of Financial Accounting 15 Medium
Characteristics of accounting and accounting information (e.g., useful for
decision making, language of business) are used to explain the importance of
accounting information.
1.3 Accounting Systems 15 Easy
The purpose and functions of accounting systems are covered, as well as the
definition of what an accounting system is and who is responsible for designing
and implementing accounting systems.
1.4 Codes of Ethics 30 Medium
Ethics, Fraud, and Corporate Governance
Students are placed in the position of a new employee who is faced with the
challenge of becoming familiar with an appropriate code of ethics and must think
through how that code might influence his/her behavior on the job.
1.5 Accessing Information on the Internet 30 Medium
Internet
Students are introduced to learning on the Internet by accessing the Rutgers
University web page on accounting information. Once there, they learn about
accounting firms, accounting textbook publishers, and professional accounting
organizations.
Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
, SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
Note to instructor: We regularly include discussion questions as part of the assigned homework. One
objective of these questions is to help students develop communications skills; however, we find that
they also increase students’ conceptual understanding of accounting.
1. Accounting is a way of communicating the results of business activity and, therefore, is
sometimes described as the language of business. Among the important accounting
measurements that communicate business activity and justify describing accounting as the
language of business are costs, prices, sales volume, profits, and return on investment.
2. The return of your investment is the repayment to you of the amount you invested earlier. The
return on your investment is what the company pays you for having the use of your money
while it was invested as opposed to you having use of the money while it was invested.
3. The three primary objectives of financial reporting, from general to specific, are to provide:
· Information that is useful in making investment and credit decisions.
· Information useful in assessing the amount, timing, and uncertainty of future cash flows.
· Information about economic resources, claims to resources, and changes in resources and
claims on them.
4. The three primary financial statements that are the means of communicating financial
accounting information are:
· Statement of financial position (balance sheet)—A statement that shows where the
company stands in financial terms at a point in time.
· Income statement—A statement that details the results of the company’s profit-seeking
activities during a period of time.
· Statement of cash flows—A statement that presents details of the company’s cash balance
—how it increased, how it decreased, and how the ending balance compares with the
beginning balance—for a period of time.
5. While financial information has an appearance of precision, it often requires judgment and
estimation and, as a result, is less precise than one might think. For example, to determine
certain information about a company for a certain year, or at a certain point in time, it may be
necessary to make estimates about the future. For example, how many years will a building be
used by a company? At what price will products a company manufactures be sold? These
estimates may or may not turn out, in the long term, to be precisely correct. This results in the
information about the current year to be less precise and accurate than would otherwise be the
case.
6. Internal accounting information is primarily oriented toward the future. While some
management accounting information is historical, the purpose of management accounting
information is to facilitate current and future decision making that is in the best interest of the
company and that is consistent with the company’s mission. Financial accounting information,
while also used for current and future decision making, is generally more historical in nature
than is management accounting. Financial accounting information deals primarily with the
financial activities of the enterprise during recent past periods.
7. Generally accepted accounting principles (GAAP) are agreed-upon ways that economic activity
will be captured and reported in monetary terms. GAAP are important in insuring the integrity
of financial accounting information and being able to compare the information of one enterprise
with that of other enterprises.
Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
ACCOUNTING: INFORMATION FOR DECISION MAKING
OVERVIEW OF BRIEF EXERCISES, EXERCISES, AND CRITICAL THINKING
CASES
Brief Learning
Exercises Topic Objectives Skills
B. Ex. 1.1 Users of accounting information 1-1, 1-3, 1-5 Analysis
B. Ex. 1.2 Components of internal control 1-2, 1-5 Analysis
B. Ex. 1.3 Inexact or approximate measures 1-3, 1-4 Analysis, judgment
B. Ex. 1.4 Standards for the preparation of 1-5, 1-6 Analysis
accounting information
B. Ex. 1.5 FASB conceptual framework 1-1, 1-3, 1-5, 1-6 Analysis
B. Ex. 1.6 PCAOB 1-5, 1-6 Analysis, research
B. Ex. 1.7 COSO 1-2, 1-5, 1-6 Analysis, ethics
B. Ex. 1.8 Professional certifications in accounting 1-7,1- 8 Analysis
B. Ex. 1.9 AICPA code of professional conduct 1-5, 1-7 Analysis, ethics
B. Ex. 1.10 Personal benefits of accounting skills 1-1 Analysis
Learning
Exercises Topic Objectives Skills
1.1 You as a user of accounting information 1-1 Analysis, judgment
1.2 Real World: Boeing Company, 1-3, 1-4 Analysis, research
California Public Employees
Retirement System, China Airlines
Users of accounting information
1.3 What is financial reporting? 1-3 Analysis, judgment
1.4 Generally accepted accounting principles 1-6 Analysis
1.5 Accounting organizations 1-6 Analysis, communication
1.6 Investment return 1-3 Analysis
1.7 Accounting terminology 1-3-1-5, 1-7 Analysis
1.8 Accounting organizations 1-6 Analysis
1.9 Financial and management accounting 1-3, 1-4 Judgment
1.10 Management accounting information 1-4 Communication, judgment
1.11 Accounting organizations 1-6 Analysis, judgment
1.12 Purpose of an audit 1-5 Analysis, judgment
1.13 Audits of financial statements 1-5 Analysis
1.14 Ethics and professional judgment 1-7 Analysis,
communication,
1.15 Careers in accounting 1-8 judgment
Judgment,
1.16 Home Depot, Inc. general information 1-1, 1-3, 1-5 communication
Analysis, judgment,
research
Due to the introductory nature of this chapter and the conceptual nature of its contents, no items labeled
Problems are included. In all future chapters you will find a series of Problems that generally include
computations, are more complex, and generally require more time to complete than Exercises.
Critical Thinking Cases
1.1 Real World: Fannie Mae 1-5 Analysis, ethics,
Reliability of financial statements judgment
1.2 Objectives of financial accounting 1-3 Analysis,
communication, group,
judgment
1.3 Accounting systems 1-2 Analysis, communication
1.4 Codes of ethics (Ethics, fraud, and 1-7 Analysis,
corporate governance) communication,
judgment
1.5 Accessing information on the Internet 1-6, 1-7 Research, technology
(Internet)
Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
,DESCRIPTIONS OF CRITICAL THINKING CASES
Below are brief descriptions of each case. These descriptions are accompanied by the estimated time (in
minutes) required for completion and by a difficulty rating.
Critical Thinking Cases
1.1 Fannie Mae 15 Easy
Reliability of Financial Statements
This case explores the general subject of integrity in financial statements—what
causes potential investors to be able to rely on information and what precludes
management from portraying a company in more positive terms than it should.
1.2 Objectives of Financial Accounting 15 Medium
Characteristics of accounting and accounting information (e.g., useful for
decision making, language of business) are used to explain the importance of
accounting information.
1.3 Accounting Systems 15 Easy
The purpose and functions of accounting systems are covered, as well as the
definition of what an accounting system is and who is responsible for designing
and implementing accounting systems.
1.4 Codes of Ethics 30 Medium
Ethics, Fraud, and Corporate Governance
Students are placed in the position of a new employee who is faced with the
challenge of becoming familiar with an appropriate code of ethics and must think
through how that code might influence his/her behavior on the job.
1.5 Accessing Information on the Internet 30 Medium
Internet
Students are introduced to learning on the Internet by accessing the Rutgers
University web page on accounting information. Once there, they learn about
accounting firms, accounting textbook publishers, and professional accounting
organizations.
Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
, SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
Note to instructor: We regularly include discussion questions as part of the assigned homework. One
objective of these questions is to help students develop communications skills; however, we find that
they also increase students’ conceptual understanding of accounting.
1. Accounting is a way of communicating the results of business activity and, therefore, is
sometimes described as the language of business. Among the important accounting
measurements that communicate business activity and justify describing accounting as the
language of business are costs, prices, sales volume, profits, and return on investment.
2. The return of your investment is the repayment to you of the amount you invested earlier. The
return on your investment is what the company pays you for having the use of your money
while it was invested as opposed to you having use of the money while it was invested.
3. The three primary objectives of financial reporting, from general to specific, are to provide:
· Information that is useful in making investment and credit decisions.
· Information useful in assessing the amount, timing, and uncertainty of future cash flows.
· Information about economic resources, claims to resources, and changes in resources and
claims on them.
4. The three primary financial statements that are the means of communicating financial
accounting information are:
· Statement of financial position (balance sheet)—A statement that shows where the
company stands in financial terms at a point in time.
· Income statement—A statement that details the results of the company’s profit-seeking
activities during a period of time.
· Statement of cash flows—A statement that presents details of the company’s cash balance
—how it increased, how it decreased, and how the ending balance compares with the
beginning balance—for a period of time.
5. While financial information has an appearance of precision, it often requires judgment and
estimation and, as a result, is less precise than one might think. For example, to determine
certain information about a company for a certain year, or at a certain point in time, it may be
necessary to make estimates about the future. For example, how many years will a building be
used by a company? At what price will products a company manufactures be sold? These
estimates may or may not turn out, in the long term, to be precisely correct. This results in the
information about the current year to be less precise and accurate than would otherwise be the
case.
6. Internal accounting information is primarily oriented toward the future. While some
management accounting information is historical, the purpose of management accounting
information is to facilitate current and future decision making that is in the best interest of the
company and that is consistent with the company’s mission. Financial accounting information,
while also used for current and future decision making, is generally more historical in nature
than is management accounting. Financial accounting information deals primarily with the
financial activities of the enterprise during recent past periods.
7. Generally accepted accounting principles (GAAP) are agreed-upon ways that economic activity
will be captured and reported in monetary terms. GAAP are important in insuring the integrity
of financial accounting information and being able to compare the information of one enterprise
with that of other enterprises.
Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
