,Solution manual for Intermediate Accounting,
17th Edition by Donald E. Kieso
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, CHAPTER 1
Financial Accounting and Accounting Standards
ASSIGNMENT CLASSIFICATION TABLE (By Topic)
Topics Questions Concepts for
Analysis
1. Subject matter of accounting. 1 4
2. Environment of accounting. 2, 3, 21 6, 7
3. Role of principles, objectives, standards, 4, 5, 6, 7 1, 2, 3, 5
and accounting theory.
4. Historical development of GAAP. 8, 9, 10, 11 8
5. Authoritative pronouncements and rule- 12, 13, 14, 15, 3, 9, 11, 12, 14
making bodies. 16, 17, 18, 19,
20
6. Role of pressure groups. 21, 22, 23, 24, 25, 10, 16, 17
26
7. Ethical issues. 28 13, 15
Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only) 1.1
,ASSIGNMENT CLASSIFICATION TABLE (By Learning Objective)
Learning Objectives Questions Cases
1. Understand the financial reporting 1, 2, 3, 4, 5, 6, 7 CA1.2, CA1.3, CA1.4,
environment. CA1.5, CA1.6, CA1.7,
CA1.9
2. Identify the major policy-setting bodies and 8, 9, 10, 11, 13, 14, CA1.1, CA1.2, CA1.3,
their role in the standard-setting process. 15, 16, 18, 19 CA1.7, CA1.8, CA1.9,
CA1.10, CA1.11,
CA1.12, CA1.14
3. Explain the meaning of generally accepted 12, 14, 18, 19, 20, 21 CA1.2, CA1.3, CA1.7,
accounting principles (GAAP) and the role of CA1.8, CA1.12
the codification for GAAP.
4. Describe major challenges in the financial 16, 17, 21, 22, 23, 24, CA1.6, CA1.10,
reporting environment. 25, 26, 27, 28 CA1.11, CA1.13,
CA1.15, CA1.16,
CA1.17
1.2 Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only)
,ASSIGNMENT CHARACTERISTICS TABLE
Level of Time
Item Description Difficulty (minutes)
CA1.1 FASB and standard-setting. Simple 15–20
CA1.2 GAAP and standard-setting. Simple 15–20
CA1.3 Financial reporting and accounting standards. Simple 15–20
CA1.4 Financial accounting. Simple 15–20
CA1.5 Objective of financial reporting. Moderate 20–25
CA1.6 Accounting numbers and the environment. Simple 10–15
CA1.7 Need for GAAP. Simple 15–20
CA1.8 AICPA’s role in rule-making. Simple 20–25
CA1.9 FASB role in rule-making. Simple 20–25
CA1.10 Politicization of GAAP. Complex 30–40
CA1.11 Models for setting GAAP. Simple 15–20
CA1.12 GAAP terminology. Moderate 30–40
CA1.13 Rule-making Issues. Complex 20–25
CA1.14 Securities and Exchange Commission. Moderate 30–40
CA1.15 Financial reporting pressures. Moderate 25–35
CA1.16 Economic consequences. Moderate 25–35
CA1.17 GAAP and economic consequences. Moderate 25–35
Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only) 1.3
, ANSWERS TO QUESTIONS
1. Financial accounting measures, classifies, and summarizes in report form those activities and that
information which relate to the enterprise as a whole for use by parties both internal and external to a
business enterprise. Managerial accounting also measures, classifies, and summarizes in report
form enterprise activities, but the communication is for the use of internal, managerial parties, and
relates more to subsystems of the entity. Managerial accounting is management decision oriented
and directed more toward product line, division, and profit center reporting.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
2. Financial statements generally refer to the four basic financial statements: balance sheet, income
statement, statement of cash flows, and statement of changes in owners’ or stockholders’ equity.
Financial reporting is a broader concept; it includes the basic financial statements and any other
means of communicating financial and economic data to interested external parties. Examples of
financial reporting other than financial statements are annual reports, prospectuses, reports filed with
the government, news releases, management forecasts or plans, and descriptions of an enterprise’s
social or environmental impact.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
3. If a company’s financial performance is measured accurately, fairly, and on a timely basis, the right
managers and companies are able to attract investment capital. To provide unreliable and irrelevant
information leads to poor capital allocation which adversely affects the securities market.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
4. The objective of general purpose financial reporting is to provide financial information about the
reporting entity that is useful to present and potential equity investors, lenders, and other creditors
in decisions about providing resources to the entity through equity investments and loans or other
forms of credit. Information that is decision-useful to capital providers (investors) may also be useful
to other users of financial reporting who are not investors.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC:: None
5. Investors are interested in financial reporting because it provides information that is useful for
making decisions (referred to as the decision-usefulness approach). When making these
decisions, investors are interested in assessing the company’s (1) ability to generate net cash
inflows and (2) management’s ability to protect and enhance the capital providers’ investments.
Financial reporting should therefore help investors assess the amounts, timing, and uncertainty of
prospective cash inflows from dividends or interest, and the proceeds from the sale, redemption,
or maturity of securities or loans. In order for investors to make these assessments, the economic
resources of an enterprise, the claims to those resources, and the changes in them must be
understood.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
6. A common set of standards applied by all businesses and entities should produce financial
statements which are reasonably comparable. Without a common set of standards, each
enterprise could, and would, develop its own theory structure and set of practices, resulting in
noncomparability among enterprises.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
7. General-purpose financial statements are not likely to satisfy the specific needs of all interested
parties. Since the needs of interested parties such as creditors, managers, owners, governmental
agencies, and financial analysts vary considerably, it is unlikely that one set of financial statements
is equally appropriate for these varied uses.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
1.4 Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only)
,Questions Chapter 1 (Continued)
8. The SEC has the power to prescribe, in whatever detail it desires, the accounting practices and
principles to be employed by the companies that fall within its jurisdiction. Because the SEC receives
audited financial statements from nearly all companies that issue securities to the public or are listed
on the stock exchanges, it is greatly interested in the content, accuracy, and credibility of the
statements. For many years, the SEC relied on the AICPA to regulate the profession and develop
and enforce accounting principles. Lately, the SEC has assumed a more active role in the develop-
ment of accounting standards, especially in the area of disclosure requirements. In December 1973,
in ASR No. 150, the SEC said the FASB’s statements would be presumed to carry substantial
authoritative support and anything contrary to them to lack such support. It thereby supports the
development of accounting principles in the private sector.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
9. The Committee on Accounting Procedure was a special committee of the American Institute of CPAs
that, between the years of 1939 and 1959, issued 51 Accounting Research Bulletins dealing with
a wide variety of timely accounting problems. These bulletins provided solutions to immediate
problems and narrowed the range of alternative practices. However, the Committee’s problem-by-
problem approach failed to provide a well-defined and well-structured body of accounting theory that
was so badly needed. The Committee on Accounting Procedure was replaced in 1959 by the
Accounting Principles Board.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
10. The creation of the Accounting Principles Board was intended to advance the written expression
of accounting principles, to determine appropriate practices, and to narrow the differences and
inconsistencies in practice. To achieve its basic objectives, its mission was to develop an overall
conceptual framework to assist in the resolution of problems as they became evident and to do
substantive research on individual issues before pronouncements were issued.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
11. APB Opinions were issued by the Accounting Principles Board during the years 1959 through
1973 and, unless superseded by FASB Statements, are recognized as accepted practice and
constitute the requirements to be followed by all business enterprises. Accounting Standards
Updates are pronouncements of the Financial Accounting Standards Board that are incorporated
into the FASB codification and therefore represent the accounting profession’s authoritative
pronouncements on financial accounting and reporting practices. In addition, note that
Accounting Research Bulletins were pronouncements on accounting practice issued by the
Committee on Accounting Procedure between 1939 and 1959; since 1964 they have been
recognized as accepted accounting practice unless superseded in part or in whole by an opinion of
the APB or an FASB standard.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
12. The explanation should note that generally accepted accounting principles or standards have
“substantial authoritative support.” They consist of accounting practices, procedures, concepts,
and methods which are recognized by a large majority of practicing accountants as well as other
members of the business and financial community. Bulletins issued by the Committee on
Accounting Procedure, opinions rendered by the Accounting Principles Board, and statements
issued by the Financial Accounting Standards Board constitute “substantial authoritative support.”
LO: 3, Bloom: K, Difficulty: Simple, 5-10, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
13. It was believed that FASB Pronouncements would carry greater weight than APB Opinions because
of significant differences between the FASB and the APB, namely, the FASB has: (1) a smaller
membership, (2) full-time compensated members; (3) greater autonomy, (4) increased
independence; and (5) broader representation than the APB.
Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only) 1.5
, LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
Questions Chapter 1 (Continued)
14. The technical staff of the FASB conducts research on an identified accounting topic and prepares
a “preliminary view” that is released by the Board for public reaction. The Board analyzes and
evaluates the public response to the preliminary view, deliberates on the issues, and issues an
“exposure draft” for public comment. The preliminary view merely presents all facts and alternatives
related to a specific topic or problem, whereas the exposure draft is a tentative “statement.” After
studying the public’s reaction to the exposure draft, the Board may reevaluate its position, revise
the draft, and vote on the issuance of a final statement.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
15. Statements of financial accounting standards contained in Accounting Standards updates
constitute generally accepted accounting principles and dictate acceptable financial accounting
and reporting practices as promulgated by the FASB. The first standards statement was issued by
the FASB in 1973.
Statements of financial accounting concepts do not establish generally accepted accounting
principles. Rather, the concepts statements set forth fundamental objectives and concepts that the
FASB intends to use as a basis for developing future standards. The concepts serve as guidelines
in solving existing and emerging accounting problems in a consistent, sound manner. Both the
standards statements and the concepts statements may develop through the same process from
discussion memorandum, to exposure draft, to a final approved statement.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
16. Rule 203 of the Code of Professional Conduct prohibits a member of the AICPA from expressing
an opinion that financial statements conform with GAAP if those statements contain a material
departure from an accounting principle promulgated by the FASB, or its predecessors, the APB
and the CAP, unless the member can demonstrate that because of unusual circumstances the
financial statements would otherwise have been misleading. Failure to follow Rule 203 can lead to
the loss of a CPA’s license to practice. This rule is extremely important because it requires
auditors to follow FASB standards.
LO: 2, 4, Bloom: K, Difficulty: Simple, Time: 5-7, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
17. The chairman of the FASB was indicating that too much attention is put on the bottom line and not
enough on the development of quality products. Managers should be less concerned with short-
term results and be more concerned with the long-term results. In addition, short-term tax benefits
often lead to long-term problems.
The second part of his comment relates to accountants being overly concerned with following a set
of rules, so that if litigation ensues, they will be able to argue that they followed the rules exactly.
The problem with this approach is that accountants want more and more rules with less reliance
on professional judgment. Less professional judgment leads to inappropriate use of accounting
procedures in difficult situations.
In the accountants’ defense, recent legal decisions have imposed vast new liability on accountants.
The concept of accountant’s liability that has emerged in these cases is broad and expansive; the
number of classes of people to whom the accountant is held responsible is almost limitless.
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
1.6 Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only)
,Questions Chapter 1 (Continued)
18. The Emerging Issues Task Force often arrives at consensus conclusions on certain financial
reporting issues. These consensus conclusions are then looked upon as GAAP by practitioners
because the SEC has indicated that it will view consensus solutions as preferred accounting and will
require persuasive justification for departing from them. Thus, at least for public companies which
are subject to SEC oversight, consensus solutions developed by the Emerging Issues Task Force
are followed unless subsequently overturned by the FASB. It should be noted that the FASB took
greater direct ownership of GAAP established by the EITF by requiring that consensus positions be
ratified by the FASB.
LO: 3, Bloom: K, Difficulty: Simple, Time: 5-7, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
19. The Financial Accounting Standards Board Accounting Standards Codification (Codification) is a
compilation of all GAAP in one place. Its purpose is to integrate and synthesize existing GAAP and
not to create new GAAP. It creates one level of GAAP which is considered authoritative. The FASB
Codification Research Systems (CRS) is an online real-time data base which provides easy access
to the Codification. The Codification and the related CRS provide a topically organized structure
which is subdivided into topic, subtopics, sections, and paragraphs.
LO: 3, Bloom: K, Difficulty: Moderate, Time: 5-7, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
20. It is hoped that the Codification will help users to better understand what GAAP is. If this occurs,
companies will be more likely to comply with GAAP and the time to research accounting issues will
be substantially reduced. In addition, through the electronic web-based format, GAAP can be easily
updated which will help users stay current.
LO: 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
21. The sources of pressure are innumerable, but the most intense and continuous pressure to
change or influence accounting principles or standards come from individual companies, industry
associations, governmental agencies, practicing accountants, academicians, professional accoun-
ting organizations, and public opinion.
LO: 3, Bloom: K, Difficulty: Simple, 5-10, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
22. Economic consequences means the impact of accounting reports on the wealth positions of issuers
and users of financial information and the decision-making behavior resulting from that impact. In
other words, accounting information impacts various users in many different ways which leads to
wealth transfers among these various groups.
If politics plays an important role in the development of accounting rules, the rules will be subject
to manipulation for the purpose of furthering whatever policy prevails at the moment. No matter
how well intentioned the rule maker may be, if information is designed to indicate that investing in
a particular enterprise involves less risk than it actually does, or is designed to encourage
investment in a particular segment of the economy, financial reporting will suffer an irreplaceable
loss of credibility.
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
23. No one particular proposal is expected in answer to this question. The students’ proposals, however,
should be defensible relative to the following criteria:
(1)The method must be efficient, responsive, and expeditious.
(2)The method must be free of bias and be above or insulated from pressure groups.
(3)The method must command widespread support if it does not have legislative authority.
(4)The method must produce sound yet practical accounting principles or standards.
The students’ proposals might take the form of alterations of the existing methodology, an accoun-
ting court (as proposed by Leonard Spacek), or governmental device.
LO: 4, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only) 1.7
, Questions Chapter 1 (Continued)
24. Concern exists about fraudulent financial reporting because it can undermine the entire financial
reporting process. Failure to provide information to users that is accurate can lead to inappropriate
allocations of resources in our economy. In addition, failure to detect massive fraud can lead to
additional governmental oversight of the accounting profession.
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
25. The expectations gap is the difference between what people think accountants should be doing and
what accountants think they can do. It is a difficult gap to close. The accounting profession recognizes
it must play an important role in narrowing this gap. To meet the needs of society, the profession is
continuing its efforts in developing accounting standards, such as numerous pronouncements issued
by the FASB, to serve as guidelines for recording and processing business transactions in the
changing economic environment.
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
26. The following are some of the key provisions of the Sarbanes-Oxley Act:
Establishes an oversight board for accounting practices. The Public Company Accounting Over-
sight Board (PCAOB) has oversight and enforcement authority and establishes auditing, quality
control, and independence standards and rules.
Implements stronger independence rules for auditors. Audit partners, for example, are required
to rotate every five years and auditors are prohibited from offering certain types of consulting
services to corporate clients.
Requires CEOs and CFOs to personally certify that financial statements and disclosures are
accurate and complete and requires CEOs and CFOs to forfeit bonuses and profits when there
is an accounting restatement.
Requires audit committees to be comprised of independent members and members with finan-
cial expertise.
Requires codes of ethics for senior financial officers.
In addition, Section 404 of the Sarbanes-Oxley Act requires public companies to attest to the
effectiveness of their internal controls over financial reporting.
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
27. Some major challenges facing the accounting profession relate to the following items:
Nonfinancial measurement—how to report significant key performance measurements such as
customer satisfaction indexes, backlog information and reject rates on goods purchased.
Forward-looking information—how to report more future oriented information.
Soft assets—how to report on intangible assets, such as market know-how, market dominance,
and well-trained employees.
Timeliness—how to report more real-time information.
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
28. Accountants must perceive the moral dimensions of some situations because GAAP does not
define or cover all specific features that are to be reported in financial statements. In these instances
accountants must choose among alternatives. These accounting choices influence whether
particular stakeholders may be harmed or benefited. Moral decision-making involves awareness of
potential harm or benefit and taking responsibility for the choices.
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Ethics, Communication, AICPA BB: Professional Demeanor, AICPA FC: Reporting, AICPA PC:
Communication
1.8 Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only)
17th Edition by Donald E. Kieso
Hello all ,
We have all what you need with best price
Our email :
Our website :
testbanks-store.com
, CHAPTER 1
Financial Accounting and Accounting Standards
ASSIGNMENT CLASSIFICATION TABLE (By Topic)
Topics Questions Concepts for
Analysis
1. Subject matter of accounting. 1 4
2. Environment of accounting. 2, 3, 21 6, 7
3. Role of principles, objectives, standards, 4, 5, 6, 7 1, 2, 3, 5
and accounting theory.
4. Historical development of GAAP. 8, 9, 10, 11 8
5. Authoritative pronouncements and rule- 12, 13, 14, 15, 3, 9, 11, 12, 14
making bodies. 16, 17, 18, 19,
20
6. Role of pressure groups. 21, 22, 23, 24, 25, 10, 16, 17
26
7. Ethical issues. 28 13, 15
Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only) 1.1
,ASSIGNMENT CLASSIFICATION TABLE (By Learning Objective)
Learning Objectives Questions Cases
1. Understand the financial reporting 1, 2, 3, 4, 5, 6, 7 CA1.2, CA1.3, CA1.4,
environment. CA1.5, CA1.6, CA1.7,
CA1.9
2. Identify the major policy-setting bodies and 8, 9, 10, 11, 13, 14, CA1.1, CA1.2, CA1.3,
their role in the standard-setting process. 15, 16, 18, 19 CA1.7, CA1.8, CA1.9,
CA1.10, CA1.11,
CA1.12, CA1.14
3. Explain the meaning of generally accepted 12, 14, 18, 19, 20, 21 CA1.2, CA1.3, CA1.7,
accounting principles (GAAP) and the role of CA1.8, CA1.12
the codification for GAAP.
4. Describe major challenges in the financial 16, 17, 21, 22, 23, 24, CA1.6, CA1.10,
reporting environment. 25, 26, 27, 28 CA1.11, CA1.13,
CA1.15, CA1.16,
CA1.17
1.2 Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only)
,ASSIGNMENT CHARACTERISTICS TABLE
Level of Time
Item Description Difficulty (minutes)
CA1.1 FASB and standard-setting. Simple 15–20
CA1.2 GAAP and standard-setting. Simple 15–20
CA1.3 Financial reporting and accounting standards. Simple 15–20
CA1.4 Financial accounting. Simple 15–20
CA1.5 Objective of financial reporting. Moderate 20–25
CA1.6 Accounting numbers and the environment. Simple 10–15
CA1.7 Need for GAAP. Simple 15–20
CA1.8 AICPA’s role in rule-making. Simple 20–25
CA1.9 FASB role in rule-making. Simple 20–25
CA1.10 Politicization of GAAP. Complex 30–40
CA1.11 Models for setting GAAP. Simple 15–20
CA1.12 GAAP terminology. Moderate 30–40
CA1.13 Rule-making Issues. Complex 20–25
CA1.14 Securities and Exchange Commission. Moderate 30–40
CA1.15 Financial reporting pressures. Moderate 25–35
CA1.16 Economic consequences. Moderate 25–35
CA1.17 GAAP and economic consequences. Moderate 25–35
Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only) 1.3
, ANSWERS TO QUESTIONS
1. Financial accounting measures, classifies, and summarizes in report form those activities and that
information which relate to the enterprise as a whole for use by parties both internal and external to a
business enterprise. Managerial accounting also measures, classifies, and summarizes in report
form enterprise activities, but the communication is for the use of internal, managerial parties, and
relates more to subsystems of the entity. Managerial accounting is management decision oriented
and directed more toward product line, division, and profit center reporting.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
2. Financial statements generally refer to the four basic financial statements: balance sheet, income
statement, statement of cash flows, and statement of changes in owners’ or stockholders’ equity.
Financial reporting is a broader concept; it includes the basic financial statements and any other
means of communicating financial and economic data to interested external parties. Examples of
financial reporting other than financial statements are annual reports, prospectuses, reports filed with
the government, news releases, management forecasts or plans, and descriptions of an enterprise’s
social or environmental impact.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
3. If a company’s financial performance is measured accurately, fairly, and on a timely basis, the right
managers and companies are able to attract investment capital. To provide unreliable and irrelevant
information leads to poor capital allocation which adversely affects the securities market.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
4. The objective of general purpose financial reporting is to provide financial information about the
reporting entity that is useful to present and potential equity investors, lenders, and other creditors
in decisions about providing resources to the entity through equity investments and loans or other
forms of credit. Information that is decision-useful to capital providers (investors) may also be useful
to other users of financial reporting who are not investors.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC:: None
5. Investors are interested in financial reporting because it provides information that is useful for
making decisions (referred to as the decision-usefulness approach). When making these
decisions, investors are interested in assessing the company’s (1) ability to generate net cash
inflows and (2) management’s ability to protect and enhance the capital providers’ investments.
Financial reporting should therefore help investors assess the amounts, timing, and uncertainty of
prospective cash inflows from dividends or interest, and the proceeds from the sale, redemption,
or maturity of securities or loans. In order for investors to make these assessments, the economic
resources of an enterprise, the claims to those resources, and the changes in them must be
understood.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
6. A common set of standards applied by all businesses and entities should produce financial
statements which are reasonably comparable. Without a common set of standards, each
enterprise could, and would, develop its own theory structure and set of practices, resulting in
noncomparability among enterprises.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
7. General-purpose financial statements are not likely to satisfy the specific needs of all interested
parties. Since the needs of interested parties such as creditors, managers, owners, governmental
agencies, and financial analysts vary considerably, it is unlikely that one set of financial statements
is equally appropriate for these varied uses.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
1.4 Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only)
,Questions Chapter 1 (Continued)
8. The SEC has the power to prescribe, in whatever detail it desires, the accounting practices and
principles to be employed by the companies that fall within its jurisdiction. Because the SEC receives
audited financial statements from nearly all companies that issue securities to the public or are listed
on the stock exchanges, it is greatly interested in the content, accuracy, and credibility of the
statements. For many years, the SEC relied on the AICPA to regulate the profession and develop
and enforce accounting principles. Lately, the SEC has assumed a more active role in the develop-
ment of accounting standards, especially in the area of disclosure requirements. In December 1973,
in ASR No. 150, the SEC said the FASB’s statements would be presumed to carry substantial
authoritative support and anything contrary to them to lack such support. It thereby supports the
development of accounting principles in the private sector.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
9. The Committee on Accounting Procedure was a special committee of the American Institute of CPAs
that, between the years of 1939 and 1959, issued 51 Accounting Research Bulletins dealing with
a wide variety of timely accounting problems. These bulletins provided solutions to immediate
problems and narrowed the range of alternative practices. However, the Committee’s problem-by-
problem approach failed to provide a well-defined and well-structured body of accounting theory that
was so badly needed. The Committee on Accounting Procedure was replaced in 1959 by the
Accounting Principles Board.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
10. The creation of the Accounting Principles Board was intended to advance the written expression
of accounting principles, to determine appropriate practices, and to narrow the differences and
inconsistencies in practice. To achieve its basic objectives, its mission was to develop an overall
conceptual framework to assist in the resolution of problems as they became evident and to do
substantive research on individual issues before pronouncements were issued.
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11. APB Opinions were issued by the Accounting Principles Board during the years 1959 through
1973 and, unless superseded by FASB Statements, are recognized as accepted practice and
constitute the requirements to be followed by all business enterprises. Accounting Standards
Updates are pronouncements of the Financial Accounting Standards Board that are incorporated
into the FASB codification and therefore represent the accounting profession’s authoritative
pronouncements on financial accounting and reporting practices. In addition, note that
Accounting Research Bulletins were pronouncements on accounting practice issued by the
Committee on Accounting Procedure between 1939 and 1959; since 1964 they have been
recognized as accepted accounting practice unless superseded in part or in whole by an opinion of
the APB or an FASB standard.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
12. The explanation should note that generally accepted accounting principles or standards have
“substantial authoritative support.” They consist of accounting practices, procedures, concepts,
and methods which are recognized by a large majority of practicing accountants as well as other
members of the business and financial community. Bulletins issued by the Committee on
Accounting Procedure, opinions rendered by the Accounting Principles Board, and statements
issued by the Financial Accounting Standards Board constitute “substantial authoritative support.”
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13. It was believed that FASB Pronouncements would carry greater weight than APB Opinions because
of significant differences between the FASB and the APB, namely, the FASB has: (1) a smaller
membership, (2) full-time compensated members; (3) greater autonomy, (4) increased
independence; and (5) broader representation than the APB.
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Questions Chapter 1 (Continued)
14. The technical staff of the FASB conducts research on an identified accounting topic and prepares
a “preliminary view” that is released by the Board for public reaction. The Board analyzes and
evaluates the public response to the preliminary view, deliberates on the issues, and issues an
“exposure draft” for public comment. The preliminary view merely presents all facts and alternatives
related to a specific topic or problem, whereas the exposure draft is a tentative “statement.” After
studying the public’s reaction to the exposure draft, the Board may reevaluate its position, revise
the draft, and vote on the issuance of a final statement.
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15. Statements of financial accounting standards contained in Accounting Standards updates
constitute generally accepted accounting principles and dictate acceptable financial accounting
and reporting practices as promulgated by the FASB. The first standards statement was issued by
the FASB in 1973.
Statements of financial accounting concepts do not establish generally accepted accounting
principles. Rather, the concepts statements set forth fundamental objectives and concepts that the
FASB intends to use as a basis for developing future standards. The concepts serve as guidelines
in solving existing and emerging accounting problems in a consistent, sound manner. Both the
standards statements and the concepts statements may develop through the same process from
discussion memorandum, to exposure draft, to a final approved statement.
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16. Rule 203 of the Code of Professional Conduct prohibits a member of the AICPA from expressing
an opinion that financial statements conform with GAAP if those statements contain a material
departure from an accounting principle promulgated by the FASB, or its predecessors, the APB
and the CAP, unless the member can demonstrate that because of unusual circumstances the
financial statements would otherwise have been misleading. Failure to follow Rule 203 can lead to
the loss of a CPA’s license to practice. This rule is extremely important because it requires
auditors to follow FASB standards.
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17. The chairman of the FASB was indicating that too much attention is put on the bottom line and not
enough on the development of quality products. Managers should be less concerned with short-
term results and be more concerned with the long-term results. In addition, short-term tax benefits
often lead to long-term problems.
The second part of his comment relates to accountants being overly concerned with following a set
of rules, so that if litigation ensues, they will be able to argue that they followed the rules exactly.
The problem with this approach is that accountants want more and more rules with less reliance
on professional judgment. Less professional judgment leads to inappropriate use of accounting
procedures in difficult situations.
In the accountants’ defense, recent legal decisions have imposed vast new liability on accountants.
The concept of accountant’s liability that has emerged in these cases is broad and expansive; the
number of classes of people to whom the accountant is held responsible is almost limitless.
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1.6 Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only)
,Questions Chapter 1 (Continued)
18. The Emerging Issues Task Force often arrives at consensus conclusions on certain financial
reporting issues. These consensus conclusions are then looked upon as GAAP by practitioners
because the SEC has indicated that it will view consensus solutions as preferred accounting and will
require persuasive justification for departing from them. Thus, at least for public companies which
are subject to SEC oversight, consensus solutions developed by the Emerging Issues Task Force
are followed unless subsequently overturned by the FASB. It should be noted that the FASB took
greater direct ownership of GAAP established by the EITF by requiring that consensus positions be
ratified by the FASB.
LO: 3, Bloom: K, Difficulty: Simple, Time: 5-7, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
19. The Financial Accounting Standards Board Accounting Standards Codification (Codification) is a
compilation of all GAAP in one place. Its purpose is to integrate and synthesize existing GAAP and
not to create new GAAP. It creates one level of GAAP which is considered authoritative. The FASB
Codification Research Systems (CRS) is an online real-time data base which provides easy access
to the Codification. The Codification and the related CRS provide a topically organized structure
which is subdivided into topic, subtopics, sections, and paragraphs.
LO: 3, Bloom: K, Difficulty: Moderate, Time: 5-7, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
20. It is hoped that the Codification will help users to better understand what GAAP is. If this occurs,
companies will be more likely to comply with GAAP and the time to research accounting issues will
be substantially reduced. In addition, through the electronic web-based format, GAAP can be easily
updated which will help users stay current.
LO: 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
21. The sources of pressure are innumerable, but the most intense and continuous pressure to
change or influence accounting principles or standards come from individual companies, industry
associations, governmental agencies, practicing accountants, academicians, professional accoun-
ting organizations, and public opinion.
LO: 3, Bloom: K, Difficulty: Simple, 5-10, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
22. Economic consequences means the impact of accounting reports on the wealth positions of issuers
and users of financial information and the decision-making behavior resulting from that impact. In
other words, accounting information impacts various users in many different ways which leads to
wealth transfers among these various groups.
If politics plays an important role in the development of accounting rules, the rules will be subject
to manipulation for the purpose of furthering whatever policy prevails at the moment. No matter
how well intentioned the rule maker may be, if information is designed to indicate that investing in
a particular enterprise involves less risk than it actually does, or is designed to encourage
investment in a particular segment of the economy, financial reporting will suffer an irreplaceable
loss of credibility.
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
23. No one particular proposal is expected in answer to this question. The students’ proposals, however,
should be defensible relative to the following criteria:
(1)The method must be efficient, responsive, and expeditious.
(2)The method must be free of bias and be above or insulated from pressure groups.
(3)The method must command widespread support if it does not have legislative authority.
(4)The method must produce sound yet practical accounting principles or standards.
The students’ proposals might take the form of alterations of the existing methodology, an accoun-
ting court (as proposed by Leonard Spacek), or governmental device.
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, Questions Chapter 1 (Continued)
24. Concern exists about fraudulent financial reporting because it can undermine the entire financial
reporting process. Failure to provide information to users that is accurate can lead to inappropriate
allocations of resources in our economy. In addition, failure to detect massive fraud can lead to
additional governmental oversight of the accounting profession.
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
25. The expectations gap is the difference between what people think accountants should be doing and
what accountants think they can do. It is a difficult gap to close. The accounting profession recognizes
it must play an important role in narrowing this gap. To meet the needs of society, the profession is
continuing its efforts in developing accounting standards, such as numerous pronouncements issued
by the FASB, to serve as guidelines for recording and processing business transactions in the
changing economic environment.
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
26. The following are some of the key provisions of the Sarbanes-Oxley Act:
Establishes an oversight board for accounting practices. The Public Company Accounting Over-
sight Board (PCAOB) has oversight and enforcement authority and establishes auditing, quality
control, and independence standards and rules.
Implements stronger independence rules for auditors. Audit partners, for example, are required
to rotate every five years and auditors are prohibited from offering certain types of consulting
services to corporate clients.
Requires CEOs and CFOs to personally certify that financial statements and disclosures are
accurate and complete and requires CEOs and CFOs to forfeit bonuses and profits when there
is an accounting restatement.
Requires audit committees to be comprised of independent members and members with finan-
cial expertise.
Requires codes of ethics for senior financial officers.
In addition, Section 404 of the Sarbanes-Oxley Act requires public companies to attest to the
effectiveness of their internal controls over financial reporting.
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27. Some major challenges facing the accounting profession relate to the following items:
Nonfinancial measurement—how to report significant key performance measurements such as
customer satisfaction indexes, backlog information and reject rates on goods purchased.
Forward-looking information—how to report more future oriented information.
Soft assets—how to report on intangible assets, such as market know-how, market dominance,
and well-trained employees.
Timeliness—how to report more real-time information.
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
28. Accountants must perceive the moral dimensions of some situations because GAAP does not
define or cover all specific features that are to be reported in financial statements. In these instances
accountants must choose among alternatives. These accounting choices influence whether
particular stakeholders may be harmed or benefited. Moral decision-making involves awareness of
potential harm or benefit and taking responsibility for the choices.
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Ethics, Communication, AICPA BB: Professional Demeanor, AICPA FC: Reporting, AICPA PC:
Communication
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