,Solution manual for Intermediate Accounting,
Volume 1, 12th Canadian Edition by Donald E.
Kieso
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, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
CHAPTER 1
THE CANADIAN FINANCIAL REPORTING
ENVIRONMENT
Learning Objectives
1. Understand the financial reporting environment.
2. Explain the need for accounting standards and identify the
major entities that influence standard setting and financial
reporting.
3. Explain the meaning of generally accepted accounting
principles (GAAP) and the significance of professional
judgement in applying GAAP.
4. Discuss some of the challenges and opportunities for
accounting.
Solutions Manual 1-1 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
Summary of Questions by Learning Objectives and Bloom’s Taxonomy
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
Brief Exercises
1. 1 C 6. 2 C 11. 2 C 16. 3 C 21. 4 C
2. 1 C 7. 1 C 12. 2 C 17. 3 C 22. 4 C
3. 1 K 8. 2 C 13. 2 C 18. 3 C 23. 4 C
4. 1 C 9. 2 C 14. 3 C 19. 4 C 24. 4 C
5. 1 C 10. 2 C 15. 3 C 20. 4 C 25. 4 C
Cases
1. 1 C 2. 1 C 3. 1 C 4. 1 C 5. 1 C
Research and Analysis
1 1 AN 2 2 AN 3 2 C 4 4 AN 5 2 C
6 2 C 7 4 AN 8 1 C 9 1 AN 10 1 C
11 3 AN 12 5 C 13 3 AN 14 5 C 15 1 C
16 2,4 C 17 2 C 18 1 AN 19 3 C
Solutions Manual 1-2 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
Legend: The following abbreviations will appear throughout the solutions
manual file.
LO Learning objective
Bloom's
BT Taxonomy
K Knowledge
C Comprehension
AP Application
AN Analysis
S Synthesis
E Evaluation
Difficulty: Level of difficulty
S Simple
M Moderate
C Complex
Time: Estimated time to complete in minutes
AACSB Association to Advance Collegiate Schools of Business
Communication Communication
Ethics Ethics
Analytic Analytic
Tech. Technology
Diversity Diversity
Reflec. Thinking Reflective Thinking
CPA CM CPA Canada Competency Map
Ethics Professional and Ethical Behaviour
PS and DM Problem-Solving and Decision-Making
Comm. Communication
Self-Mgt. Self-Management
Team & Lead Teamwork and Leadership
Reporting Financial Reporting
Stat. & Gov. Strategy and Governance
Mgt. Accounting Management Accounting
Audit Audit and Assurance
Finance Finance
Tax Taxation
Solutions Manual 1-3 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
ASSIGNMENT CLASSIFICATION TABLE
Topic Brief Exercises Cases
1. Financial statements and financial reporting. 7
2. Capital allocation. 1
3. Stakeholders. 2 3, 4, 5
4. Objectives of financial reporting. 3, 15, 23
5. Management bias in financial reporting. 1, 2, 4, 5
6. Importance of user needs in financial reporting. 7, 15
7. Need for accounting standards. 6, 7, 8
8. Parties involved in standard-setting. 8, 9, 10, 11, 12,
13, 14, 15
9. GAAP. 16, 17, 18, 19
10. Professional judgement. 20, 21
11. Ethical issues. 22, 24 1, 2, 5
12. Challenges facing financial accounting 21, 25, 26
13. Information asymmetry 4, 5
Solutions Manual 1-4 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 1-1
Accounting has the responsibility of measuring company
performance accurately and fairly on a timely basis. This enables
investors and creditors to assess the relative risks and returns
of investment opportunities and channel resources more
effectively. 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. Unreliable and
irrelevant information leads to poor capital allocation, which
adversely affects the securities market and ultimately the
performance of the economy as a whole.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 1-2
Some stakeholders using financial accounting information and
financial statements include:
Investors – These stakeholders are interested in the performance
of their investment in the company. They will use the financial
statements to evaluate management stewardship and
effectiveness.
Creditors – These stakeholders are interested in evaluating the
company to decide whether to lend it money. They use the
statements to evaluate the risk that will be taken in making the
loan. For example, lenders want to know whether the company
will be able to repay its loans when due and service both interest
and principal on a timely basis.
Solutions Manual 1-5 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
BRIEF EXERCISE 1-2 (CONTINUED)
Canada Revenue Agency (CRA) – This stakeholder establishes
the rules for measuring taxable income. It is interested in the fair
measurement of the financial position and financial performance
of the company so that the appropriate amount of tax will be paid.
The financial statement’s net income is the starting point in
preparing tax returns. Net income for accounting purposes is
adjusted to arrive at net income for tax purposes, which is used
to calculate the amount of tax payable. The CRA is principally
interested in compliance with the Income Tax Act.
Financial Analysts – These stakeholders provide investment
advice to their clients. They are interested in evaluating the
investment opportunities and potential of various companies.
Note: This is only a suggested list of stakeholders and their
possible uses of the financial accounting information. There are
many other stakeholders as discussed in the chapter that would
be acceptable answers to this question.
Different stakeholders make different decisions that require
different information. For example, lenders want to know whether
the company will be able to repay its loans but the Canada
Revenue Agency (CRA) wants to know the amount of taxes that
should be paid for the current year. Much of the information that
the lenders would request, such as who are the company’s major
customers and the amounts they owe the company, would be of
no interest to the CRA for income tax purposes yet may be of
relevance in a GST/HST review.
LO 1 BT: C Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting
Solutions Manual 1-6 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
BRIEF EXERCISE 1-3
The overall objective of financial reporting is to provide financial
information that is useful to users (primarily capital providers
such as investors and lenders) and that is decision relevant
(i.e., will help them make decisions about allocating capital).
The statements should communicate information about:
1. the entity’s economic resources and claims to those
resources and
2. changes in those resources and claims.
Note the emphasis on resource (or capital) allocation decisions,
which requires a focus on the statement of financial position.
The assessment of management stewardship is also important
since users need to know whether management is doing their job
to maximize shareholder value (which is also called fiduciary
duty). As a general rule, it is assumed that management
stewardship is already taken into account in the resource
allocation decision.
LO 1 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 1-4
Information asymmetry exists when one stakeholder in the
financial reporting process has more or different information than
another. For example, management generally has more
information about the company than external investors or
creditors. While it is neither practical nor optimal for perfect
information symmetry to exist, financial reporting serves the role
of ensuring that relevant information is properly communicated
to external parties such as investors, and others.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
Solutions Manual 1-7 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
BRIEF EXERCISE 1-5
Where information asymmetry exists, there is a risk that the party
with the additional information will act in its own self-interest to
the detriment of the other party and/or the capital market in
general. For instance, management might withhold negative
information about the company for fear that it will hurt the
manager’s bonus. This would not be optimal for external parties
such as creditors and investors who may need that information
before they invest or lend the company money. The risk that the
party with the additional information may act in its own self-
interest is known as moral hazard. If people understand that this
behaviour is tolerated in the marketplace, the marketplace may
attract people and companies that accept and tolerate this
behaviour (known as adverse selection). This will degrade the
capital marketplace as there will be less transparency and
information sharing and thus suboptimal capital allocation.
LO 1 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 1-6
A common set of standards applied by all businesses and entities
provides 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 financial
reporting practices, resulting in a lack of comparability among
enterprises.
LO 2 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
Solutions Manual 1-8 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
Volume 1, 12th Canadian Edition by Donald E.
Kieso
Hello all ,
We have all what you need with best price
Our email :
Our website :
testbanks-store.com
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
CHAPTER 1
THE CANADIAN FINANCIAL REPORTING
ENVIRONMENT
Learning Objectives
1. Understand the financial reporting environment.
2. Explain the need for accounting standards and identify the
major entities that influence standard setting and financial
reporting.
3. Explain the meaning of generally accepted accounting
principles (GAAP) and the significance of professional
judgement in applying GAAP.
4. Discuss some of the challenges and opportunities for
accounting.
Solutions Manual 1-1 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
Summary of Questions by Learning Objectives and Bloom’s Taxonomy
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
Brief Exercises
1. 1 C 6. 2 C 11. 2 C 16. 3 C 21. 4 C
2. 1 C 7. 1 C 12. 2 C 17. 3 C 22. 4 C
3. 1 K 8. 2 C 13. 2 C 18. 3 C 23. 4 C
4. 1 C 9. 2 C 14. 3 C 19. 4 C 24. 4 C
5. 1 C 10. 2 C 15. 3 C 20. 4 C 25. 4 C
Cases
1. 1 C 2. 1 C 3. 1 C 4. 1 C 5. 1 C
Research and Analysis
1 1 AN 2 2 AN 3 2 C 4 4 AN 5 2 C
6 2 C 7 4 AN 8 1 C 9 1 AN 10 1 C
11 3 AN 12 5 C 13 3 AN 14 5 C 15 1 C
16 2,4 C 17 2 C 18 1 AN 19 3 C
Solutions Manual 1-2 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
Legend: The following abbreviations will appear throughout the solutions
manual file.
LO Learning objective
Bloom's
BT Taxonomy
K Knowledge
C Comprehension
AP Application
AN Analysis
S Synthesis
E Evaluation
Difficulty: Level of difficulty
S Simple
M Moderate
C Complex
Time: Estimated time to complete in minutes
AACSB Association to Advance Collegiate Schools of Business
Communication Communication
Ethics Ethics
Analytic Analytic
Tech. Technology
Diversity Diversity
Reflec. Thinking Reflective Thinking
CPA CM CPA Canada Competency Map
Ethics Professional and Ethical Behaviour
PS and DM Problem-Solving and Decision-Making
Comm. Communication
Self-Mgt. Self-Management
Team & Lead Teamwork and Leadership
Reporting Financial Reporting
Stat. & Gov. Strategy and Governance
Mgt. Accounting Management Accounting
Audit Audit and Assurance
Finance Finance
Tax Taxation
Solutions Manual 1-3 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
ASSIGNMENT CLASSIFICATION TABLE
Topic Brief Exercises Cases
1. Financial statements and financial reporting. 7
2. Capital allocation. 1
3. Stakeholders. 2 3, 4, 5
4. Objectives of financial reporting. 3, 15, 23
5. Management bias in financial reporting. 1, 2, 4, 5
6. Importance of user needs in financial reporting. 7, 15
7. Need for accounting standards. 6, 7, 8
8. Parties involved in standard-setting. 8, 9, 10, 11, 12,
13, 14, 15
9. GAAP. 16, 17, 18, 19
10. Professional judgement. 20, 21
11. Ethical issues. 22, 24 1, 2, 5
12. Challenges facing financial accounting 21, 25, 26
13. Information asymmetry 4, 5
Solutions Manual 1-4 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 1-1
Accounting has the responsibility of measuring company
performance accurately and fairly on a timely basis. This enables
investors and creditors to assess the relative risks and returns
of investment opportunities and channel resources more
effectively. 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. Unreliable and
irrelevant information leads to poor capital allocation, which
adversely affects the securities market and ultimately the
performance of the economy as a whole.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 1-2
Some stakeholders using financial accounting information and
financial statements include:
Investors – These stakeholders are interested in the performance
of their investment in the company. They will use the financial
statements to evaluate management stewardship and
effectiveness.
Creditors – These stakeholders are interested in evaluating the
company to decide whether to lend it money. They use the
statements to evaluate the risk that will be taken in making the
loan. For example, lenders want to know whether the company
will be able to repay its loans when due and service both interest
and principal on a timely basis.
Solutions Manual 1-5 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
BRIEF EXERCISE 1-2 (CONTINUED)
Canada Revenue Agency (CRA) – This stakeholder establishes
the rules for measuring taxable income. It is interested in the fair
measurement of the financial position and financial performance
of the company so that the appropriate amount of tax will be paid.
The financial statement’s net income is the starting point in
preparing tax returns. Net income for accounting purposes is
adjusted to arrive at net income for tax purposes, which is used
to calculate the amount of tax payable. The CRA is principally
interested in compliance with the Income Tax Act.
Financial Analysts – These stakeholders provide investment
advice to their clients. They are interested in evaluating the
investment opportunities and potential of various companies.
Note: This is only a suggested list of stakeholders and their
possible uses of the financial accounting information. There are
many other stakeholders as discussed in the chapter that would
be acceptable answers to this question.
Different stakeholders make different decisions that require
different information. For example, lenders want to know whether
the company will be able to repay its loans but the Canada
Revenue Agency (CRA) wants to know the amount of taxes that
should be paid for the current year. Much of the information that
the lenders would request, such as who are the company’s major
customers and the amounts they owe the company, would be of
no interest to the CRA for income tax purposes yet may be of
relevance in a GST/HST review.
LO 1 BT: C Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting
Solutions Manual 1-6 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
BRIEF EXERCISE 1-3
The overall objective of financial reporting is to provide financial
information that is useful to users (primarily capital providers
such as investors and lenders) and that is decision relevant
(i.e., will help them make decisions about allocating capital).
The statements should communicate information about:
1. the entity’s economic resources and claims to those
resources and
2. changes in those resources and claims.
Note the emphasis on resource (or capital) allocation decisions,
which requires a focus on the statement of financial position.
The assessment of management stewardship is also important
since users need to know whether management is doing their job
to maximize shareholder value (which is also called fiduciary
duty). As a general rule, it is assumed that management
stewardship is already taken into account in the resource
allocation decision.
LO 1 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 1-4
Information asymmetry exists when one stakeholder in the
financial reporting process has more or different information than
another. For example, management generally has more
information about the company than external investors or
creditors. While it is neither practical nor optimal for perfect
information symmetry to exist, financial reporting serves the role
of ensuring that relevant information is properly communicated
to external parties such as investors, and others.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
Solutions Manual 1-7 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kieso, Weygandt, Warfield, Wiecek, McConomy Intermediate Accounting, Twelfth Canadian Edition
BRIEF EXERCISE 1-5
Where information asymmetry exists, there is a risk that the party
with the additional information will act in its own self-interest to
the detriment of the other party and/or the capital market in
general. For instance, management might withhold negative
information about the company for fear that it will hurt the
manager’s bonus. This would not be optimal for external parties
such as creditors and investors who may need that information
before they invest or lend the company money. The risk that the
party with the additional information may act in its own self-
interest is known as moral hazard. If people understand that this
behaviour is tolerated in the marketplace, the marketplace may
attract people and companies that accept and tolerate this
behaviour (known as adverse selection). This will degrade the
capital marketplace as there will be less transparency and
information sharing and thus suboptimal capital allocation.
LO 1 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 1-6
A common set of standards applied by all businesses and entities
provides 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 financial
reporting practices, resulting in a lack of comparability among
enterprises.
LO 2 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
Solutions Manual 1-8 Chapter 1
Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
