ACCOUNTING: INFORMATION FOR DECISION MAKING
OVERVIEW OF BRIEF EXERCISES, EXERCISES, AND CRITICAL THINKING
CASES
Analysis, communication,
judgment
Analysis, communication,
judgment
Analysis, judgment,
research
Due to the introductory nature of this chapter and the conceptual nature of its c...
,ACCESS Test Bank for Financial & Managerial Accounting 20th Edition
Williams
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,
judgment
1.15 Careers in accounting 1-8 Judgment, communication
1.16 Home Depot, Inc. general information 1-1, 1-3, 1-5 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: American Airlines Group 1-5 Analysis, ethics, judgment
Reliability of financial statements
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, communication,
corporate governance) judgment
1.5 Accessing information on the Internet 1-6, 1-7 Research, technology
(Internet)
,ACCESS Test Bank for Financial & Managerial Accounting 20th Edition
Williams
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 American Airlines Group Inc. 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 and Social Responsibility
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.
, ACCESS Test Bank for Financial & Managerial Accounting 20th Edition
Williams
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.
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