207PM4Q@@0- pS Ua ee Te era QQ @ studocu.com/row/do @ = studocu . @& Seon malo rac and manawa acount iton by wlan Bae Bat estes Fi sn Manga Acs SOLUTIONS TO BRIEF EXERCISES External users af cco information incl investors, teditrs customers and 4 Contra environment ik assconment {Information and communication Monitoring Accounting Fetes om incract oF approximate measures ecause many accounts fn anil statements ae dependent on judgment abot fre events anon a assessment of management Intent. For example a busines that sel Hs goods oF service on credit must make an cstinate af the dollar amount of cuter eccivables that wil atiautely prove uncolletibie. The estimation of unclleetile stomer receivables insoles siguileaat management jadgment The Securities an Exchange Commission (SEC) as the statutory authori to «stabi accounting standards for public conypanics nthe United Stats The SEC has lnrgly delegated its authority for establishing accounting standards tthe "Financial Accounting Standards Board (FASB). The PASB's Conccptl Framework ses forth the Boars views on the: (0) jective of fnancial reporting, (2) desired eharatristis of acouating {nformation, (3) elements of nana stateens() criteria for deciding what Information to include in financial statements, and (5) valuation concepts relating to financial statement amounts The fou primary acti ofthe PCAOB are (1) reg standard setting. and 4) enforcement. 2) inspections (3) The sponsoring organizations of COSO are the American Accounting Association (AAAh the American Institue of Ceried Publle Accountants (AICP), Final "Exccutives International (FED Institute of Internal Auditors (A), andthe Tastate ot Management Accountams (IMA), COSO Is best know for developing a framework used inthe US for evaluating the efcetvenes ofan organization's ssstem of internal contol207-PM@@Q0- Rta QQ @ studocu.com/row/do @ Gstudocu Seon malo rac and manawa acount iton by wlan Bae Ba estes este Beste Mana Fase Manag Aso Although there are move dha three profesional certifications offered in accountng, the thrceprfcetonal certains that we dca ia ti chap arc + CetiedPuble Accountants (CPA) ~ each state separately lenses CPAS, although the CPA cvam sa uniform national exam that is prepared and graded bythe AICPA + Ctfed Management Accountant (CMA) ~this efifetion is aed by the Instat of Management Aecountants + Cetted Internal Avditor (C14) ~ this certification fffered by the Instat of Invern suitors 1b Responsit © The Public interest, 1 Imterity a Duecare 4 Scope aml nature a series Atthough there ate many posal answers tothe quction, cxample of account ‘elated sls seul to many people in thelr personal ives are: (1) person budgeting, 2 retreat and ealege planning, (3) lease. bu deco, 8) rating Ioan terms and (5) cvatating investment portant.209PMO SA QA aa QQ @ studocu.com/row/do @ = Getudocu 2 & Seon mano rac and manawa account iton by wlan Bae SOLUTIONS TO EXERCISES [Ex.1c1_Thefollwing ars just a fw of the ways in which you might ws accounting formation aa student: + Deciding whic choo to goto, and wht Selecting major his involves costhencit amass. 4+ Estimating your moh ving expenses and planning how tay the aun in advance for major expenditures, uel athe dep on a apartinent, using textbonks, pas alton, or taking vacation, ing accommodations you can alflord + Balancing your checkbook. + Evaluating employment opportuni sratlaton. fes—both while you are in schol and upon “+ Evaluating how marriage or having a child at tis stage of your He might have a ‘nancial effecton your goals. Ass student, you may be required to supply financial information about youre when loin such things 8 + Appving fr credit card + Appin for lan fora car. “+ Applving for scholarship oF finan + Renting an apartment. + Preparing your personal income tax etre i EX12 a Asoneof the world’s largest pension fads, California Public Employees Retirement System (Cal PERS) also sone ofthe world's largest stockholders. (Cal PERS uses Bocings nancial statements and other financial information to decid wheter to inside the capital stock of Bocing Company in ts Investment portftla Asa rapidly growin iting, Chins Airlines may bea major emstomer of Boing forthe oreseeable future Blor ordering airral (which are ordered yeas in auvanee ofthe delivery dates), Cha Ans wil want to determine thatthe ‘manufacturer asthe Manca eapalty to afl the contract and aot stand ching siete ia yeast come. leerafl manacturers, like automakers, sometimes mst rec planes to correct delet discovered ater sears of use) {© Bovis nancial health and fotare prospects affect the demand for housing (am partcts in mich ofthe Seat are. (Nef tasters Haing’s pact pon, Seatle’s economy is legendary. However, Sette’ economy has become much tore averse in resent years (for tnstance, Mlcrovat Nordstrom, Starbucks, and Costco are headquartered there, and Boeing has less impact than nthe past Nonetheless ehether Hocing hiring or lying of workers til sien hose areas within comfortable commating distance of Bat estes 51 9-Fnaia Manga Asoo lon by Wi the company's responses Ore Fequre constant use of detaled acounting information abou past, current, and209PMO SA pS Uae er QQ @ studocu.com/row/do @ = Getudocu 2 & Seton malo rac and manawa acount iton by wlan Bae Management is responsible for planning future operations, sng the company's resource fica, and gencrally unting the basics, These responce equlte constant use of dtaled acounting nfrmation abou past, current, and ‘expected ature operations {©The financial healt and future prospects of Boeing affect the contracts that labor tnlons wll e able to negotiate. Bocng's backlog of ule orders basally ‘determines wh ath “athird set la labor negedatons—the company othe ttle. EX.13 a Finca reporting ithe proces of sping cial nformation abo “organization fo persons outside the organization, Financial statements are the principal accounting reports involved inthe Hinancial porting proces. The purpose of these statements sto supply persons ouside the ‘organization with information about the nancial positon profitably, and cash ows ofthe reporting ett. Publicly owned companies are required by law to make hele annual aud quarterly Financ statements publ that available t anne. For ater businesses, the decision to dstebute financial statements o persons outside the organization may be optlonal, However, creditors and outside investors oncrall expect to recie financial statcnrtsperlodicll ea condion of making lone or nvestcnts 4. Financial reporting helps decision maker in uizing searceeconomle resources filly. These decison about allocaton of revourec determine ‘vhat goods and services become avaiable, Also aleted are sch aspects of {he economy a pric levels employatent, escarch and development ad the standard of ing very socety—wbether is esomomy ie based upon free markets ental Dlaningbenefts when its care resources ae belize eflienty. The ‘cient wea economic reources mens ha aces sets the maxnnom benefit foetal he resources at its dap x14 a, Generally accepted seeounting principles, stablshed by the authoritative Sstandard-sttag bodies are the polls ad tale ules used in determining the ‘content and format of anneal statements, Accounting principles have cold fom a variety of sources. Toda, the primary ‘official sourees are the Financial Accounting Standards Board (FASB) and the Tatcrnational Accounting Standatds Bord (ASB), Hower, the Amerlea Institute of CPAS (AICPA) and the Secures and Exchange Combsion (SEC) leo patlipate nthe development of thee principles. nalion, scouting, Principles may pain general acceptance fom uno soures, such as Isiespread we. The FASH has developed codification of al promutented (written sources of GAAP. This is ascot ou comprehensive it of generally acepted account Principles as elt. However, GAAP ala develops informally heough accepted Dracies. These are nt neces cif, +e prepared in W pmever, the ‘standards of orescataton odin come tax rturs, pers to regulatory209PMO SA DSU ee es QQ @ studocu.com/row/do @ = Getudocu 2 & Seon malo rac and manawa acount iton by wlan Bae 4. Pinan statements ate the accountng reports that should be prepared a accordance wih generally seeped aroun plage. However the Standards of presentation aed in Income tn returns report regulatory agencies and various reports to management often make some us ofthese principles, The FAS (Financial Aeoo sore cog nan chang mn contin i Prior tthe ereation ofthe FASD, the AICPA (American Institute of Cetited Pablic Accountants ha responsibil for decloping asoumting prigipss, Many ‘ofthe principles devsloped bythe AICPA roman infect. The AICPA continue {o cade esate inte accountng sues and abe Is Hndings Known to the FASB {© The SEC (Securities and Exchange Combson) has the ope autho fo spelly ccrally accepted accounting principles. Homevcr the SEC general as chose not to develop sown prneples, but rater to support those ofthe FASB. Thus, the SEC gives the fore of law to gencrally accepted accounting principe. The SEC alo reviews the laancia statements af al publly owned companies, ad inwestizates possible violations of federal ccs la. Information about poblity-eld companics is most easy obtained from the SEC. abit owned corporations mus ether quarterly and anna ancl statements for review by this agency. The SEC then lacs thi infermation on EDGAR, a database accessible tthe publicon the Internet. In contrast the FASB. primarily Is tandard-setting organization, and dors not accumulate oF review financial Information about all publ owned companies, When external srs need this spe af nfrmaton they use EDGAR. Ex. You expect to cas flows fom your investment: eetura of lavestinnt at matory) ‘etura on investncat (pero, a tate a your investment serecment(S12000 194 «2948 sere i080 Total expected cash Now svonsnsncnsnonnensnsnnanne Sis “The retain of your investment wil om atom ne—tw years later at the maturity date, The return onthe avestnent ca cme a diferen patterns. ar example, Its Ssean-annuall, sou woul reeve SEB (912,000 7% 12 yea) fur tne. Tits “nna, you would ceive SAA (S120 72) wu ns, Hb meaty, nl sci $0 (S420 7% » 13) 24 hes, rein \ 1 Finance statements209PMO SA QA al QQ @ studocu.com/row/do @ = studocu . @& Seon malo rac and manawa acount iton by wlan Bae a accounting gement accounting inane reporting Financial statements General purpose assumption Inearty Internal contro Publi accounting Bookkeeping Aste of Internal Auditors Securities and Exchange Commision American Instat of PAS Ite of Management Accountants Flnaneal Accounting Standards Board Ameriean Accounting Associaton able Company Accounting Oversight Board International Accounting Standards Board Asan investor in «company, your primary objective wal be the return of your lavestmeat in he future, aswell tear for thus of our funds weed By the mpany during the period of ivestent. You would need informatio that lowed you tases he probably of those eves aeureing inthe ature. You ‘igh ale have certain nonfinancal objectives. Asa manager ofthe company, your primary objective would bet have Information that allows yout etter manage the company-—to make the best decisions post enhance the vale of the company. White heres some formation that would be equally important for investors snd managers uch ofthe information needed by the two groups diferent Tha is why westid bath Hinancil accounting information fr external Wer) and managerial accounting (information for internal users) The primary purposes of management account general to specifi) ae as follows 1 Taformation asta ohelp the enterprise ableve is gals objectives, and 2. Information that useful in asesing bth the past performance and fare Aicetions f the enterprise and information frm exeral and lateral 3. Information about deeson-making authority, for delson-aaking support, snd for cesoating and rewarding decision-making performance The frst the most general and deal with managements responsibilty athe broadest sense—to achiev the enterprise's al, objectives, and msn. The second is mare specifica talks about past performance aud fate irctons. The thirds mot specie and deals wth information fora specie purpose—evaluating and rewarding decision-making performance. in Merarchical order (Le, rom Ore2:09PM® & A AMEE WSU LeRoy = studocu Soltion manvalforfirancil and managerial accounting Ith eation by wil. Examples ofthe kinds of essons that ar spparted by information ae + Mlow to more tfilently manage the enterprise's resoures. Mateo redace the ost af producing a pride! i order to be competitive + What supplier can het mec the enterprise’ production cheating 1 How to beter allocate resources internally to acleve te enterprise's objects + Whether to manulactre new prod {Whether to mov nto anew geographic arc. sayement accountng EXLIT a, Asam accounting educator, the organization that would be most direst invaved in sctivites eevant to your nork woul be the American Aecaunting Asocation “This orgenizaton provides members service operat them a becone beter at teaching. research, and other elves that a pally asvoclated with an teademie carer. addin, many acadeile accountant are active members of ther organlatlons that are more pruticeorened 1 Asamanazcment accountant, the Inte of Manaecment Accountants would be ‘he most ditety beneficial to yon. Tit organization proves many crices ithe Certified Management rected toward members nist, nl Accountant designation tne American Insite of Certified Pb ly valuable to yo in ers of serves that would Support your war, Ex L124, Amauditisan examination of company’s nancial statements by am independent {Wid party who has no iret financial lteres in the enterprise being auld. The Public accountants rl am audit to eamine the extent to whieh the Haan Staercnt ll generally accepted accouulng principles and are presented alely in accordance with thine princes Asser external fnanca information, the favorable opinion ofa externa "dior provides you wlth reasonable assurance that yu can ely om those Financ statements. This permits you to compare the information af the catcrprise with information from previous years o information abou ther ‘aterprises (assuming they 0, havea favorable adit plain} in making your investment decisions Am audit conclusion stating that nancial statements are ot ft presented in accordance with generally aeseptd accounting principles should ase questions "shout the reliability ofthe financial inrmation and the desraiity of the nerprise as am investment, While thre may note anything wrong with the fnterprin, ther serail queation sto thy the statements arena ary presented. Onee the lnfartaton to expla his obtained, eonelusion my thea he reached a fo whether the lack of cenformly wth generally accepted accountng pncites tan important factor kn mang an lvestanent la he eaerpi Ful et topes uote Mun Facil so Manages Acoso Wills ELLIS 4. Amul a thorough independent investigation o each em and disclosure Investigation Jesation ofthe es.210PM® & A AMEE WSU LeRoy = Getudocu 2 & Seton mano ral and manawa accountng iton by wlan Bae EX 118 a, Amandit sa thorough independent investigation of each item and dstsure ‘mtained in a set of Financial statement The parpon of thi investigation i to determine thatthe ancl statements provide afar preseatation of the ets in eonarmity ith general ace el account prince. ‘Amati performed bya frm of Certitied Public Accountants thats Independent of both the company tha prepared the Hank statements and ‘© Thepurpese ofan audit isto provide users of fnancl statements with Independent, expert assurance that the nancial statements present fay the ‘nana posto a he company, aud the result fs opeetins in contoraty vith seneraly accepted accounting prinepts In short the ait is intended 1 bre the credibity gap that might otherwise exist between the reporting entity find the uses ofthe nana statements. ors do nt gwurents the accuracy ofthe statements rather, the efe thelr "eapert opinon” ato the fares ofthe statements The audtors pian Tse pan a careful investigation (the aud) ut there falas the posit of ‘ror. ver many year, however aie financial aterments have acca fan xcllent track record of rab Ex Lld a, People use accounting information to make economic decisions the economy to function effet thee decision makers mst have confidence im the Information they are provided, and not think tha perhaps the information eg used a deche them a large part, detsion makers confidence Ia accounting stems from hele confidence and trast nthe people who prepare tis information. . Accountants must ely upon their professional judgment in sch matters as eterminng (1) how to record an unusual transaction that i wot discussed in ‘ccouting erature, 2) whether or ata spelfisituaton requires dno (3) what information wil he mst usta to spect delsion makers, 4) Bow a8 accounting stern should be dsined to operate most tient, ¢) the aud augven situation, (6) what conte afar” fons 7) whether specific actions are ethical and are in keeping with dies tserve the publ’ interests EX.11S Acosta who entered pic accounting ie to Find here specaiing in ‘uti inancial statements in dong income tax work, or in providing ‘anagemcat advisory series, With any of thes spect, she wile proving serves toa numberof diferent lit, Of cours, Acorta may als hae flowed ‘path chosen by many other publi accountants: she may have let publle accountng to parsve a management carer in indus Her baekground in public ‘scouting wil have ven her experience tha can be well in many managerial positions. Nakao, having chosen a managerial career, works or ingle company. Mer ‘pining some experienc, he probably has chosch an arcaof specialization, uch ae fnancial sepoting, sets dss cost accounting finial moved into inl mer, or210PM® & A AMEE WSU LeRoy = Getudocu 2 & Seon malo rac and manawa acount iton by wlan Bae Bul le stapes i sn Mangia Acsuming 5s ty Wins ‘Nakao, having chosen a managerial career works for a single company. After ‘gaining ome experience, he probably has chosen an area of specialization, ‘eh snail reporting, stems design cst account erecting, ncn tates interna audiing Hea imanaement carer, sch como, treasurer, chit Financial cer, oF chit excuse off Martin, who joined a governmental ageney, may find hers speclalzng in management accounting functions sila o those avallable to Nakao, Or, she ay speciale n auditing actives, The government conducts nude o deterne the eficiency af gvernmental operations and those of ‘governmental eontrators, and ao a determine the flrs of faaneal information reported to the goverment. Like Acosta and Nakao, Martin aso may have used er acounting background asa stepping-stone to am ‘ministrative posto, Mandl, wh became an accounting faculty member, probably will specialize in teaching and research. He may direct his forts toward those topics mich Ire finds of greatest persona interest Like many ther facalty members Manila als may engage in management consulting, writ textbooks, or Spend sometime serving within such organztions a5 the AICP. the INA, ‘the IALor the AAS. EX.116 4. + Comoliated Balance Sheets {+ Contidated Statements of Farnings 1 Conotiated Statement of Stockholder’ Equity and Comprehensive Income + Consolidated Statomncnts of Cash Flows + Managemen’ Responsibility for Finaneal Statements {Managements Report on tral Control over Financia Reporting 5 Report of tndcpendent Resitered Public Aecounting Fem Notes t Consolidated Finan Staterica 10-Vear Summary of Financial and Opcrating Resale Ore210PM® & A R QQ @ studocu.com/row/do @ = Getusocu © @ Seton mn franl and mangutacaining ih oston bwin. EEE 0 see Ba le stp + Muna Fac s Manugi- Aso SOLUTIONS TO CRITICAL THINKING CASES CASE 1.4 CHRYSLER CORPORATION RELIABILITY OF FINANCIAL STATEMENTS factors preventa lage publicly owned corporation suchas Chrysler from suing cis no matter how desperately the there fhe hs honesty a integrity af he compan counting personne. Many people participate nthe preparation ofthe corporation, For thse statement tobe prepared in 2 grossly misicading people would have to Amoingly participate in an at of erin fra str capil Next, there the audit of Chrysler's nan statemeats by firm of tndependeat CPAS These CPAs to, woul have to participate na ermal conspiracy if the comp creditors and Investors with grossly miseading financial statements Mperso preside rere to supply Integrity sno sufcen to deter such am act of fraud the federal series ans cal a lavestgaton would hea "tip iain ois ating frm. An investigation also woud launched he company declared baakraptcy or became ian vent shortly afr fag hts that dd aot indlate a shaky final poston. company’s stomatal franca210PM® & A AMEE WSU LeRoy = Qstudocu Soltion manvalforirancil and managerial accounting Ith eaition by william. Ba estas Mana Fina a Manugi- Aso 15 Minutes, Mum, CASE 1.2 OBJECTIVES OF FINANCIAL ACCOUNTING 4 Describing ina sreditrs and asthe byes mahere—whether internal r external that information mst he ‘onmnicated. The proces of communicating the iformation x why accountings Sometimes referred to he laneuaae of business. ge between the wos bert bn some ther urs that are stated ‘words forthe monetary ',_Asamextrmal investor or credtor, your primary concerns the scurty of your investment and the return you arc making on permitting another tse your money rather than your having use ft yourself Asm aterm Interested in operating the busts and You need ifarinato of decisons that are reqleed by the parca tase for exter fvestors an inter row of users of accounting Information ges ther information Is unique to210PM® & A Rt AMEE WSU LeRoy = Qstudocu Soltion manvalforirancil and managerial accounting Ith eaition by william. Ful et topesnk uct Man Fac se Manages Aco 15 Minutes, Easy CASE 1.3 ACCOUNTING SYSTEMS yng that takes to praduceeellable and accurate ape, equipment, comptes software technical om acd by the oryaniration,and tod ‘sstem ae to: se fanctons of a accounting ctr inor 4+ Sammarizc and communicate information to detsion maker The design and imple ‘aries from station tstuation, tnt ic alvays involves people with spetlized knowledge of financial and managerial accountng nd increase incorporates computer technolo. om ofan acct210PM® & A Rt AMEE WSU LeRoy = Qstudocu Soltion manvalforirancil and managerial accounting Ith eaition by william. 30 Minutes, Minn CASE 1.4 CODES OF ETHICS ETHICS, FRAUD & CORPORATE GOVERNANCE Professional Practice of competence, of” tem, they will have Among the things you woul ear in studying the Statoment of ‘the IVA is thatthe code Includes requtrements nthe following ‘confide, nts, and erably. While these may sound ‘irs relevance to yw in sour job, starting on the ery Firs da ‘Competence refers tothe quay of having the sks, knowledge, and background tobe able te do ‘quality ob on the work you are aiignd. Your new employer bas undoubtedly sendy aude a jdgumeat about sour competence, and You passed the st, oF Yu Would nt have been hired Confidentiality refers othe act that some af the infor intern of who should have accesso. Your respons information in ny wa. Integrity refers to your ned to avo conf afinterst by doing something that would subvert comma based information, or cngage fn acts that ethe accounting profession. sour organlzaton's bj ‘Mould dered your ev ‘Crebiley macans that you shold communicate information in fir nd unbiased man, 0d ‘hat you should include all inortation that rele fr understand formatlon210PM® & A Rt AMEE WSU LeRoy = Getudocu 2 & Seon malo rac and manawa acount iton by wlan Bae 20 Mites, Median CASE 1.5 ACCOUNTING REPORTS LACK CANDOR BUSINESS WEEK a. The mest general objctiv of fnancial reporting ito provide information usful in making Investment and ered deesons. The second abjetiv to provide inarmaton usta in assessing ‘the ant ting, and uncertainty of fate cashflows partic, the neertainy of ator ‘ish lv information mould be ver nett the potential investors The third and most spec objective sto provide information about the resoures and claims to those resources and ow those esoures and lain change oer tne Financial statements should presi a that usta to investors and creditors "This informationfeuss on the company’s Hackl pasion, results of operathns, tows. ‘b._ Several features of the accountng profession are ia place with the intent nerity in iancial reporting. These include, but are wo Fite tthe following 1+ Wethdcfined standards of ancl reporting, ns whose experts contributes tothe ng Standards Board, the nd Exchange Comal, the NOB and other erganiatons. ‘+ tovernal comet steuctures within companies tha are designed to mitigate the sk af internal misappropriation of fds ‘Audits of nancial statements by independent Certifed Public Accountants. esislton that provides oversight for anes in the United States an place hese "espenibility om management and auditors opetform ther responsibilities in a manuer ‘that consistent th the publi terest. Ore a210PM® & A AMEE WSU LeRoy = studocu Soltion manvalforirancil and managerial accounting Ith eaition by william. 30 Mites, Meine CASE 1.6 ACCESSING INFORMATION ON THE INTERNET INTERNET 4 Rutgers Unversity has a comprehensive Internet sit fr information on accounting. Whew sents explore his site, they wil i nfrmaton inthe follwing eategories aso ne 2008): BieFour EDGAR Professional Asacations TASB ublieatons International Publisher Software Finance Other Sites feesore Entertainment Taxation ‘vit Lane Government >. When exploring the Big Four eatesory students will ad the following mames af the Big Five tiem Datite& Touche raat & You PriceaterhouseCoopers KPMG «. Studcnts may goto MGraw-Hilcom to sce the McGraw companis, 44. These professlonal organlzations may be located atthe mri ta: n Accounting Assocation hao Financia Accounting Standards Board bot Instat ternal Auditors svn.thliaore Instat of Management Accountants saa inane (Once the arguntzation found her a variety ef lformation available, including Information shout the mision ofthe organization, ts pabliatans, how te beame 8 meme, fy