Assignment

Prepare Solutions for Chapter 1 for the following: Exercise 1-4; 1-6; 1-7; 1-9; Critical Thinking Case 1-5

1-4 Generally Accepted Accounting Principles

Generally accepted accounting principles play an important role in financial reporting.

a. What is meant by the phrase generally accepted accounting principles?
b. What are the major sources of these principles?
c. Is there a single comprehensive list of generally accepted accounting principles? Explain.
d. What types of accounting reports are prepared in conformity with generally accepted accounting principles?

1-6 Investment return

You recently invested $18,000 of your saving in a security issued by a large company. The security agreement pays you 6 percent per year and has a maturity three years from the day you purchased it. What is the total cash flow you expect to receive from this investment, separated into the return on your investment and the return of your investment?

1-7 Accounting Terminology

- Financial accounting: a. Statement of financial position (balance sheet), income statement, statement of cash flows.

- Management accounting: b. The segment of the accounting profession that relates to providing audit, tax, and consulting services to clients.

- Financial reporting: c. The area of accounting that refers to providing information to support external investment and credit decisions.

- Financial statements: d. The procedural aspect of accounting that involves keeping detailed records of business transactions, much of which is done today by computers.

- General-purpose information: e. Procedures and processes within an organization that ensure the integrity of accounting information.

- Integrity: f. A broad term that describes all information provided to external users, including but not limited to financial statements.

- Internal control: g. The area of accounting that refers to providing information to support internal management decisions.

- Public accounting: h. The fact that the same information is provided to various external users, including investors and creditors.

- Bookkeeping: i. An important quality of accounting information that allows investors, creditors, management, and other users to rely on the information.

Match the organization on the left with the functions on the right. Each function should be used.

1-9 Financial and Management Accounting

The major focus of accounting information is to facilitate decision making.

a. As an investor in a company, what would be your primary objective?
b. As a manger of a company, what would be your primary objective?
c. Is the same accounting information likely to be equally useful to you in these two different roles?

1-5 Critical thinking Case: Accessing Information on the Internet

a. The largest U.S. accounting firms are referred to as the Big 4-Deloitte, EY, KPMG, and PwC. Find the internet sites of these four firms and learn what you can about the types of services provided by the firm.

b. The Public Company Accounting Oversight Board (PCAOB) was created by the Sarbanes-Oxley Act to oversee auditors of public companies. Find the PCAOB's Internet sight and learn what you can about the PCAOB's four major activities.

c. The Financial Accounting Standards Board (FASB) is the designated accounting standard setter in the U.S. Find the FASB's board members including a brief description of their background.

d. The International Accounting Standard Board (IASB) is the body that issues International Financial Reporting Standards. Find the IASB's Internet site and identify the IASB's board members including a brief description of the background of five board members.