Solution Manual

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TABLE OF CONTENTS
SOLUTIONS MANUAL
Chapter 1
Chapter 2
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter

3
4
5
6
7
8
9
10
11
12

Chapter 13

Introduction to Financial Reporting . . . . . . . . . . . .
Introduction to Financial Statements and Other Financial
Reporting Topics. . . . . . . . . . . . . . . . . . . . . .
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . .
Income Statement. . . . . . . . . . . . . . . . . . . . . .
Basics of Analysis. . . . . . . . . . . . . . . . . . . . .
Liquidity of Short-term Assets; Related Debt-Paying Ability
Long-Term Debt-Paying Ability . . . . . . . . . . . . . . .
Profitability . . . . . . . . . . . . . . . . . . . . . . .
For the Investor. . . . . . . . . . . . . . . . . . . . . .
Statement of Cash Flows . . . . . . . . . . . . . . . . . .
Expanded Analysis . . . . . . . . . . . . . . . . . . . . .
Special Industries: Banks, Utilities, Oil and Gas,
Transportation, Insurance, Real Estate Companies. . . . . .
Personal Financial Statements and Accounting for
Governments and Not-For-Profit Organizations. . . . . . . .

1

1
20
41
68
88
107
160
187
234
260
299
340
366

Chapter 1
Introduction to Financial Reporting
TO THE NET
1.

a.

he Mission of the Financial Accounting Standard Board
(In Part)
The mission of the Financial Accounting Standards
Board (FASB)is to establish and improve standards of
financial accounting and reporting for the guidance
and education of the public, including issuers,
auditors and users of financial information.
Accounting standards are essential to the efficient
functioning of the economy because decisions about
the allocation of resources rely heavily on credible,
concise, transparent and understandable financial
information. Financial information about the
operations and financial position of individual
entities also is used by the public in making various
other kinds of decisions.
To accomplish its mission, the FASB acts to:


Improve the usefulness of financial
reporting by focusing on the primary
characteristics of relevance and
reliability and on the qualities of
comparability and constancy;



Keep standards current to reflect
changes in methods of doing business and
changes in the economic environment;



Consider promptly any significant areas
of deficiency in financial reporting that
2

might be improved through the standardsetting process;




b

Promote the international convergence of
accounting standards concurrent with
improving the quality of financial
reporting; and
Improve the common understanding of the
nature and purposes of information
contained in financial reports.

Financial Accounting Standards Advisory Council
An Overview
The Financial Accounting Standards Advisory Council,
FASAC or “the Council” for short, was formed in 1973
concurrent with the establishment of the Financial
Accounting Standards Board (the FASB or the Board).
The primary function of FASAC is to advise the Board
on issues related to projects on the Board’s agenda,
possible new agenda items, project priorities,
procedural matters that may require the attention of
the FASB, and other matters as requested by the
chairman of the FASB. FASAC meetings provide the
Board with an opportunity to obtain and discuss the
views of a very diverse group of individuals from
varied business and professional backgrounds.
The members of FASAC are drawn from the ranks of
CEOs, CFOs, senior partners of public accounting
firms, executive directors of professional
organizations, and senior members of the academic and
analyst communities, all disclosure.
Carrying Out the Mission
It is the job of the FASB to establish the “generally
accepted accounting principles,” or GAAP, to which
public financial reporting by U.S. corporations must
conform and to keep those principles current.
In conducting its activities,...
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