Financial Accounting
for Decision Makers 3e
Mark DeFond
(Solutions Manual with
Test Bank All Chapters,
100% Original Verified,
A+ Grade)
All Chapters Solutions
Manual Excel files
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,QUESTIONS Intermediate Accounting, 3e Solutions Manual
Hanlon, Hodder, Nelson, Roulstone, Dragoo Chapter 1
1-1. General-purpose financial statements are designed to meet the needs of external decision makers. They are
general purpose because they are designed to be used by diverse groups of decision makers, such as investors,
creditors, and other interested parties.
The components of general-purpose financial statements typically include:
1. Income statement: A periodic statement of results of operations.
2. Comprehensive income statement: A periodic statement of results of operations and other comprehensive income.
3. Balance sheet: A periodic statement of financial position.
4. Statement of cash flows: A periodic statement of cash inflows and outflows.
5. Statement of stockholders' equity: Reports the beginning equity balances, activity, and the ending equity balances.
1-2. Financial statements include specific reports: comprehensive income statement (or a separate income statement
and a comprehensive income statement), cash flow statement, balance sheet, and stockholders’ equity statement.
Financial reporting is the process of communicating financial information, which includes the financial statements
plus other reports such as press releases, management discussion & analysis, etc.
1-3. The basic objective of general-purpose financial reporting is to provide financial information about the reporting
entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about
providing resources to the entity. Those decisions involve buying, selling, or holding equity and such instruments and
providing or settling loans and other forms of credit.
1-4. Financial reporting is geared toward external users because they have an immediate need for financial
information and are not able to directly access the information. The conceptual framework indicates that financial
information providers may assume that financial statement users are reasonably informed of business and economic
activities and will diligently review and analyze the financial information presented.
1-5. The emphasis in financial accounting is placed on communication because the financial statements are a primary
source of information that users rely on in making investment decisions. The statements must be comprehensible to
the users.
1-6. Yes, financial statements do include data based on assumptions about the future. For example, the allowance for
bad debts is an estimate of future uncollectible accounts receivable.
1-7. The primary formulator of GAAP is the FASB. Although the SEC has the authority to formulate GAAP, the SEC has
delegated this authority to the private sector. However, the SEC may require a change to the accounting standards at
any time.
©Cambridge Business Publishers, 2023
, QUESTIONS Intermediate Accounting, 3e Solutions Manual
Hanlon, Hodder, Nelson, Roulstone, Dragoo Chapter 1
on makers. They are
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©Cambridge Business Publishers, 2023
, QUESTIONS Intermediate Accounting, 3e Solutions Manual
Hanlon, Hodder, Nelson, Roulstone, Dragoo Chapter 1
1-8. The establishment of the FASB was brought about due to complaints both from within and outside the
accounting profession, with respect to the establishment of accounting standards. These complaints related to the
representation of the APB’s members and the independence of the views of the members, nearly all of which were
employed full time by their accounting firms. A committee was appointed to “study the issues and problems
involved in the establishment of accounting principles, together with recommendations for improving the process
and making it more responsive to the needs of those who rely on financial statements.” In March 1972, the
committee presented a report in which it recommended a Financial Accounting Foundation, a Financial Accounting
Standards Board (FASB), a Financial Accounting Standards Advisory Council, and a better structuring of the process
used to develop accounting standards. These recommendations were accepted by the AICPA and, as a result, the
FASB became operational July 1, 1973. The FASB serves as an independent board to prescribe accounting standards.
1-9. A number of recommendations resulted from the Wheat Committee which examined the issues with the prior
accounting boards (Accounting Principles Board and Committee on Accounting Procedure) which when
implemented contribute to the efficiency of the FASB. These including the following:
1. Smaller board size of 7 voting members.
2. Financial independence including funding and full salaries for the board members.
3. Autonomy where board members cannot retain investments in other companies.
4. Broader representation where all board members are not required to be CPAs.
4. Advisory support through a supporting committee (FASAC).
6. Greater continuity through renewable five-year terms.
1-10. The SEC exerts a continuing influence on the establishment of accounting standards. The Commission was
given legal statutory authority to prescribe external financial reporting requirements for those companies under its
jurisdiction. However, the SEC generally has elected to rely upon the accounting profession to establish and enforce
accounting standards and to regulate the profession. There is a positive working relationship between the SEC and
the accounting profession. However, there have been occasions when the SEC felt the public interest was not being
fully served and forced the accounting profession to address critical problems. In a few instances, the SEC has
prescribed certain accounting and reporting practices without waiting for action by the profession. In at least one
case it did not accept a proposed FASB standard. The SEC is responsible for the enforcing compliance with the
accounting standards for required registrants of the SEC.
1-11. GAAP is the body of concepts, principles, and procedures that guides the preparation of financial statements.
GAAP is organized within the Codification system and is updated by the FASB through Accounting Standard
Updates. Prior to the consolidation of GAAP in the Codification, GAAP consisted of multiple-source documents
produced by the FASB, the AICPA, the EITF and other standard setters.
1-12. The essence of the FASB’s due process procedure is to provide an open format that allows an opportunity for
interested parties to express their views before decisions on reporting standards are reached.
1-13. The Sarbanes Oxley Act is a law passed in 2002 to mandate reforms to enhance corporate responsibility,
enhance financial disclosures, and combat accounting fraud. Key topics include the establishment of the Public
Company Accounting Oversight Board to oversee the auditing profession, personal financial statement certification
by CEOs and CFOs, independence of audit services, formal internal control assessments, audit committee
requirements and required periodic review of company’s periodic financial statements filed with the SEC.
©Cambridge Business Publishers, 2023
