Financial reporting manual

TABLE OF CONTENTS
v v




SOLUTIONSvMANUAL
Chapterv1 IntroductionvtovFinancialvReporting ........................... 1
Chapterv2
............................................................. In
troductionvtovFinancialvStatementsvandvOthervFinancialvReportingvTo
pics. ........................................................ 20
Chapterv3 BalancevSheet ................................................ 41
Chapterv4 IncomevStatement. ............................................ 68
Chapterv5 BasicsvofvAnalysis. ........................................... 88
Chapterv6 LiquidityvofvShort-termvAssets;vRelatedvDebt-PayingvAbilityv 107
Chapterv7 Long-TermvDebt-PayingvAbility ................................. 160
Chapterv8 Profitability ................................................ 187
Chapterv9 ForvthevInvestor. ............................................. 234
Chapterv10 StatementvofvCashvFlows ....................................... 260
Chapterv11 ExpandedvAnalysis ............................................ 299
Chapterv12
............................................................. Spe
cialvIndustries:vBanks,vUtilities,vOilvandvGas,vTransportation,vInsu
rance,vRealvEstatevCompanies. ................................. 340
Chapterv13 PersonalvFinancialvStatementsvandvAccountingvfor
GovernmentsvandvNot-For-ProfitvOrganizations. ................. 366




1

, Chapterv 1vIntroduction
tovFinancialvReporting
v




TOvTHEvNET

1. a.vhevMissionvofvthevFinancialvAccountingvStandardvBoardv(InvPar
t)

ThevmissionvofvthevFinancialvAccountingvStandardsvBoardv(
FASB)isvtovestablishvandvimprovevstandardsvofvfinancialvac
countingvandvreportingvforvthevguidancevandveducationvofvt
hevpublic,vincludingvissuers,vauditorsvandvusersvofvfinan
cialvinformation.

Accountingvstandardsvarevessentialvtovthevefficientvfunct
ioningvofvtheveconomyvbecausevdecisionsvaboutvthevallocat
ionvofvresourcesvrelyvheavilyvonvcredible,vconcise,vtransp
arentvandvunderstandablevfinancialvinformation.vFinanci
alvinformationvaboutvthevoperationsvandvfinancialvpositio
nvofvindividualventitiesvalsovisvusedvbyvthevpublicvinvmaki
ngvvariousvothervkindsvofvdecisions.

Tovaccomplishvitsvmission,vthevFASBvactsvto:

 Improvevthevusefulnessvofvfinancialvre
portingvbyvfocusingvonvthevprimaryvchara
cteristicsvofvrelevancevandvreliabilit
yvandvonvthevqualitiesvofvcomparabilityv
andvconstancy;

 Keepvstandardsvcurrentvtovreflectvchangesv
invmethodsvofvdoingvbusinessvandvchangesvinvt
heveconomicvenvironment;

 Considervpromptlyvanyvsignificantvareasvofv
deficiencyvinvfinancialvreportingvthat


2

, mightvbevimprovedvthroughvthevstandard-
settingvprocess;
v




 Promotevthevinternationalvconvergencevofvac
countingvstandardsvconcurrentvwithvimprovi
ngvthevqualityvofvfinancialvreporting;vand

 Improvevthevcommonvunderstandingvofvthevna
turevandvpurposesvofvinformationvcontainedv
invfinancialvreports.

b

FinancialvAccountingvStandardsvAdvisoryvCouncilvAn

Overview
v

ThevFinancialvAccountingvStandardsvAdvisoryvCouncil,vFASA
Cvorv“thevCouncil”vforvshort,vwasvformedvinv1973vconcurrentv
withvthevestablishmentvofvthevFinancialvAccountingvStanda
rdsvBoardv(thevFASBvorvthevBoard).

ThevprimaryvfunctionvofvFASACvisvtovadvisevthevBoardvonviss
uesvrelatedvtovprojectsvonvthevBoard’svagenda,vpossiblevne
wvagendavitems,vprojectvpriorities,vproceduralvmattersvt
hatvmayvrequirevthevattentionvofvthevFASB,vandvothervmatte
rsvasvrequestedvbyvthevchairmanvofvthevFASB.vFASACvmeeting
svprovidevthevBoardvwithvanvopportunityvtovobtainvandvdisc
ussvthevviewsvofvavveryvdiversevgroupvofvindividualsvfromv
variedvbusinessvandvprofessionalvbackgrounds.

ThevmembersvofvFASACvarevdrawnvfromvthevranksvofvCEOs,vCFOs
,vseniorvpartnersvofvpublicvaccountingvfirms,vexecutivevd
irectorsvofvprofessionalvorganizations,vandvseniorvmembe
rsvofvthevacademicvandvanalystvcommunities,vallvdisclosure
.

CarryingvOutvthevMission
ItvisvthevjobvofvthevFASBvtovestablishvthev“generallyvaccept
edvaccountingvprinciples,”vorvGAAP,vtovwhichvpublicvfinan
cialvreportingvbyvU.S.vcorporationsvmustvconformvandvtovke
epvthosevprinciplesvcurrent.

Invconductingvitsvactivities,vthevBoardvstrivesvtovcarefu
llyvweightvthevviewsvofvitsvusers,vpreparers,vandvauditors
vofvfinancialvreport.vThevCouncilvprovidesvanvimportantvso

undingvboardvtovhelpvthevFASBvunderstandvwhatvconstituents
varevthinkingvaboutvavwidevrangevofvissues.




3

, FASAC’svrolevisvnotvtovreachvavconsensusvorvtovvotevonvthevi
ssuesvthatvitvconsidersvatvitsvmeetings.
Rather,vFASACvoperatesvasvavwindowvthroughvwhichvthevBoard
vcanvobtainvandvdiscussvthevrepresentativevviewsv ofvthevdiv
ersevgroupsvthevFASBvaffects.vThus,vFASACvprovidesvthevfor
umvforvtwo-
wayvcommunication.vWhilevitvisvimportantvtovconvenevthevCo
uncilvmembersvasvavgroup,vthatvisvsovthatvthevBoardvcanvhea
rvthevindividualvviewsvofvthosevmembersvandvsovthatvthevmem
bersvcanvhearvandvrespondvtoveachvother’svviews.

MembersvofvFASACvarevurgedvtovspeakvoutvpubliclyvonvmatter
svbeforevthevFASBvandvalsovtovbevsupportivevofvthevBoard’sv
process,vandvthevprinciplevofvprivate-
vsectorvstandardvsetting.v IndividualvCouncilvmembersv are
vnotvexpectedvtovagreevwithvthevBoard’svdecisionsv onvallvof
vthevtechnicalvaspectsvofvthevprojectsvonvthevBoard’svagen

da,vbutvitvisvimportantvthatvFASACvmembersvsupportvthevins
titutionvandvitsvduevprocess.

StructurevofvthevOrganization
FASACvisvanvoperatingvarmvofvthevfinancialvAccountingvFoun
dation,vanvorganizationvthatvisvindependentvofvanyvothervb
usinessvorvprofessionalvorganization.v ThevFoundationvisv
runvbyvav16-
membervBoardvofvTrusteesvwhovarevleadersvinvthevbusiness,v
accounting,vfinancial,vgovernmentvandvacademicvcommuniti
es.

ThevFoundationvselectsvthevmembersvofvFASACvincludingvthevc
hairmanvandvbroadlyvoverseesvitsvoperations.
ThevCouncilvcomprisesv33vmembersvwhovrepresentvavbroadvc
rossvsectionvofvthevBoard’svconstituency.vTheyvarevappo
intedvforvavone-
yearvtermvareveligiblevtovbevreappointedvforvthreevadditi
onalvone-yearvterms.

ThevProcess
ThevCouncilvmeetsvoncevavquartervatvthevFASB’svofficesvinv
Norwalk,vCt.vLikevthevFASB,vFASACvisvcommittedvtovfollowi
ngvanvopen,vorderlyvprocessvthatvisvopenvtovpublicvobserva
tion.vInvadditionvtovehvCouncilvmembers,vthevmembersvofvth
evFASB,vitsvdirectorvofvresearchvandvtechnicalvactivitie
s,vseveralvmembersvofvthevFASB’svstaff,vandvthevchiefvacco
untantvofvthevSECvattendveachvmeeting.

2. Eachvstudentvwillvselectvavcompanyvandvobtainvavcopyvofvthe
irvannualvreport,v10-K,vandvproxy.

4