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Solutions manual for intermediate accounting 18th edition, stice & stice

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Solutions Manual For Intermediate Accounting 18th Edition, Stice & Stice YOU CAN FIND MORE QUESTIONS AND ANSWERS, just go HEREANSWERS TO QUESTIONS CHAPTER 1: 1.…
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Solutions Manual For Intermediate Accounting 18th Edition, Stice & Stice YOU CAN FIND MORE QUESTIONS AND ANSWERS, just go HEREANSWERS TO QUESTIONS CHAPTER 1: 1. The users of accounting information can be divided into two groups: internal users, who make decisions directly affecting the inter- nal operations of an enterprise, and exter- nal users, who use the information to make decisions concerning their relationships with the enterprise. Members of the latter group include creditors, investors, govern- ment, and the general public. Both types of users benefit by receiving information needed to make economic decisions. Gen- erally, accounting information is used to help make decisions that affect the alloca- tion of scarce resources, including labor, materials, and capital. 2. Because almost all resources used in the world are limited in quantity, these re- sources must be allocated to specific activi- ties. Accounting information can be used to determine the profitability of activities relative to the using up of resources. By structuring the accounting information in different ways, measurements can be reported that will sug- gest alternative ways to allocate the re- sources to better meet the goals and objec- tives of both society as a whole and specific economic units in particular. 3. Accounting information is of most value in making decisions that will affect the future. There are many examples of how account- ing information can be used to assist in this process. Three examples follow: (a) Creditors must evaluate a company’s ability to repay money borrowed in the present at specific dates in the future. Past accounting information can be used to forecast whether the future cash flows will be sufficient to meet the repayment schedule. (b) Investors enter into investment ar- rangements that are expected to pro- duce revenue streams that will meet their needs. Projections of expected cash flows of a company can indicate the likelihood of a company’s paying fu- ture dividends equal to those needs. (c) Management must use planning to re- alize the goals and objectives of the company. A key ingredient in any plan- ning process is a budget that projects the inflows and outflows of resources over future time periods. The base for this information is past accounting in- formation that establishes patterns and trends most likely to continue into the future. 4. Management accounting is concerned with the information required by management as a basis for making short- and long-term op- erating decisions. Financial accounting is concerned with information reported to ex- ternal users, primarily investors, and credi- tors. While some of thewww.testbanksuccess.cominformation required by these different users could be the same, internal accounting reports generally contain more detail than external reports. The added detail assists management in making spec- ific decisions. The accounting system is generally designed to meet the needs of both groups, although accounting personnel may specialize in one or the other areas. 5. The general-purpose financial statements are made up of the following five items: •Balance sheet•Income statement•Statement of cash flows•Explanatory notes to the financial statements•Auditor’s opinionCHAPTER 2: 1. The accounting system generates a variety of reports for use by various decision mak- ers. Among the most common are general- purpose financial statements, management reports, tax returns, and other reports pre- pared for government agencies such as the SEC. 2. A manual and an automated accounting system are similar in that both are designed to serve the same information-gathering and processing functions. Both systems also use the same underlying accounting concepts and principles. The differences between a manual and an automated ac- counting system involve some mechanical aspects, time requirements, and the appearance of records and reports. Due to advanced technology and reduced prices, today almost all successful businesses of any size use computers to assist in the var- ious accounting functions. 3. The accounting process involves certain procedures used by businesses to produce financial statement data. The recording phase of the accounting process consists of those procedures used in the continuing activity of analyzing, recording, and classi- fying business transactions in the various books of record (journals and ledgers) dur- ing the fiscal period. The reporting phase of the accounting process consists of those procedures used at the end of the fiscal pe- riod to update and summarize data col- lected during the recording phase. Finan- cial statements are prepared from the up- dated and summarized data. 4. The accounting process includes the fol- lowing steps: (1) Business documents are analyzed. Business documents provide detailed information concerning each transac- tion and establish support for the data recorded in the books of original entry. (2) Transactions are recorded in chrono- logical order in books of original entry— the journals. Transactions are analyzed in terms of their effects on the various asset, liability, owners’ equity, revenue, and expense accounts of the business unit.www.testbanksuccess.com(3) Transactions are posted to the appro- priate accounts in the general and sub- sidiary ledgers. The ledger accounts classify and summarize the full effect of all transactions recorded in the journals and can be used in the preparation of financial statements. (4) A trial balance may be prepared showing the account balances in the general ledger and reconciling subsidiary ledger balances with respective control account balances. The trial balance provides a summary of the information as classi- fied and summarized in the ledgers as well as a verification of the accuracy of recording and posting. (5) Adjustments are made to bring the accounts up to date. Adjustments are necessary to record all accounting information that has not yet been recorded and to properly recognize all revenues and expenses on an accrual basis. If a spreadsheet is used (an optional step in the cycle), adjustments may be journalized and posted any time prior to closing. If statements are prepared directly from ledger balances, however, adjustments must be re- corded at this point. (6) Financial statements are prepared. Financial statements report the results of operations and cash flows for a period of time and show the financial condition of the business unit as of a certain date. (7) Closing entries are journalized and posted. Balances in nominal accounts are closed into Retained Earnings. Op- erating results as determined in the summary accounts are finally transferred to Retained Earnings. (8) A post-closing trial balance may be prepared as an optional step in the cycle. A post-closing trial balance is prepared to check the equality of the debits and credits after posting the adjusting and closing entries. The steps in the accounting process are necessary to transform transaction data into useful information as summarized in the financial statements and other account- ing reports. Some steps are optional, such as preparing a trial balance and preparing a post-closing trial balance. These steps help verify or facilitate the accounting process but are not essential. 5. Under double-entry accounting, assets, ex- penses, and dividends are increased by debits and decreased by credits. Liabilities, owners’ equity accounts, and revenues are increased by credits and decreased by de- bits.CHAPTER 3: 1. Three elements, as defined by the FASB, are contained in a balance sheet: assets, liabilities, and equity. These elements measure the worth of an enterprise at a given point in time. The balance sheet thus reports what resources an enterprise has and who has claim against those resources. Two other elements, investments by owners and distribution to owners, are related to the equity element. Information concerning the change in equity is often contained in a separate statement that supplements the balance sheet. 2. In order to meet the definition of an asset, an item need not be associated with certain future benefit. To acknowledge the uncer- tainty inherent in business, the definition of an asset stipulates that the future benefit need be only probable.www.testbanksuccess.com3. Some liabilities, such as accounts payable and long-term debt, are denominated in precise monetary terms. However, the amounts of many liabilities must be esti- mated based on expectations about future events. 4. The difference between current assets and current liabilities, referred to as working capital, is a commonly used measure of the liquidity of an enterprise. It helps to deter- mine whether the company will be able to meet its current debts and obligations with available assets and still continue normal operations. 5. a. Assets are classified as current if (1) the asset will be realized in cash during the normal operating cycle of the business or 1 year, which- ever is longer, or (2) the asset will be sold or consumed within a normal operating cycle or 1 year, whichever is longer.CHAPTER 4: 1. The objective of financial reporting is to provide useful information for users of the financial statements. The relevant informa- tion for decision making is future data, es- pecially information dealing with cash flows. The primary financial statements reflect economic transactions and events that have taken place. The past is used to help project the future. Income, however, is only one of many sources of cash flow. The bal- ance sheet and statement of cash flows also furnish relevant information upon which the investor may project other future cash flows. In summary, the income state- ment contains only some of the information that is relevant for making economic deci- sions. 2. Two approaches can be used to measure income: the capital maintenance approach and the transaction approach. The capital maintenance approach uses the balance sheet elements to determine the change in total equity after eliminating any invest- ments and withdrawals of resources by owners. The transaction approach deter- minesincome by analyzing individual transactions and events and their effect on related assets, liabilities, and owners’ eq- uity. Although the method of determining income differs, both approaches arrive at the same total income figure if the same at- tributes and measurements are used. How- ever, the transaction approach produces more detail as to the composition of income than does the capital maintenance ap- proach. 3. Measurement methods that could be ap- plied to net assets in the capital mainte- nance approach to income determination are as follows: (a) The historical cost of net assets ac- quired in exchange transactions, re- duced by an allowance for their use. (b) The historical cost of net assets ac- quired in exchange transactions, re- duced by an allowance for their use and adjusted for a change in price lev- els since original acquisition. (c) The current value of net assets ac- quired in exchange transactions as de- termined by either their replacement or market values.www.testbanksuccess.com(d) Some variation of the above (a through c) but including in assets all resources and claims to resources, not just those acquired in exchange transactions. 4. The objectives of reporting income for in- come tax purposes and for financial re- porting to users are not the same. Those formulating income tax laws are usually concerned with fairness among taxpayers and with their ability to pay taxes. Users, on the other hand, are concerned with a measure that distinguishes between a re- turn on investment and a return of invest- ment. They want a measure that matches expenses against recognized revenue. In most cases, the same accounting method can be used for both purposes. This will re- duce both the cost and the confusion of using more than one accounting method for the same transaction. In some cases, however, the generally accepted accounting method is different from that required by income tax regulations. This results in a temporary difference between the tax re- turn and the books and gives rise to inter- period income tax allocation. 5. A code law country is one in which rules, laws, and accounting standards are set by legal processes—from the top down. A common law country is one in which rules, laws, and accounting standards evolve in response to societal and market forces— from the bottom up002E`CHAPTER 5: 1. Cash flow from operations can offer a clearer picture of a company's performance than does net income when: • A company reports large noncash ex- penses, such as write-offs, deprecia- tion, and provisions for future obliga- tions. Earnings may give an overly pessimistic view of the firm. • A company is growing rapidly. Re- ported earnings may be positive, but operations are actually consuming ra- ther than generating cash. • A company badly needs to report fa- vorable earnings, as is the case before a major loan application or before a stock offering. In these cases, cash flow from operations provides an excel- lent reality check for reported earnings. 2. To qualify as a cash equivalent when pre- paring a statement of cash flows, an item must be (a) readily convertible to cash, and (b) so near its maturity that there is insig- nificant risk of changes in value due to changes in interest rates. As a general rule, only investments with original maturities of three months or less qualify. The original maturity is determined from the date of acquisition of the invest- ment by the entity, not the date of original issuance of the security. 3. Operating activities include those transac- tions and events that enter into the deter- mination of net income. Cash receipts from selling goods or from providing services are the major cash inflow for most businesses. Major cash outflows include payments to purchase inventory and to pay wages, taxes, interest, utilities, rent, and similar expenses.www.testbanksuccess.comInvesting activities are the purchase and sale of land, buildings, and equipment and the purchase and sale of financial instru- ments not intended for trading purposes. Financing activities include transactions and events whereby cash is obtained from or repaid to owners (equity financing) and creditors (debt financing). 4. The normal pattern of cash flow is •Operating—positive•Investing—negative•Financing—either positive or negative5. The direct method reports all operating cash receipts and cash payments. The dif- ference between cash receipts and pay- ments is the net cash flow from operations. The indirect method begins with net income as reported on the income statement, ad- justs for any noncash items (such as de- preciation), and converts the accrual amounts to a cash basis. The result of this reconciliation process is net cash flow from operations, which will be exactly the same amount as derived using the direct method.AND MUCH MOREYOU CAN FIND MORE QUESTIONS AND ANSWERS, just go HEREHAVE BEST TEST RESULT! ☺☺☺ ☺ ☺☺☺www.testbanksuccess.com
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