1、Page111. List several economic decisions that rely on accounting information.Answer:Whether to grant a loan How much to pay for a share of common stock. Whether to grant a rate increase to an electric utilityHow much in damages the loser of a lawsuit must payHow much of a bonus to pay a plant manage
2、rWhether to enter a new market2. Why do financial statements have footnotes, and what kinds of information might you find in them?Financial statements have footnotes because financial disclosure is a complex business. The notes tell us some of the specifics about the company environment , what accou
3、nting methods the company has used, what the accounting numbers might be if alternative methods had been used, and some of the major contingencies that are not formally included in the statement proper.Page 201.Describe the process of setting accounting standards. What are the roles of all the parti
4、es you mention?The FASB, a private, not-for-profit organization ,sets GAAP in the U.S. It publicly declares an agenda, promulgates Exposure Drafts of proposed standards, holds open meetings, and invites input from interested parties. The FASB has been delegated this authority by the SEC, a governmen
5、t agency with legal authority to determine GAAP.2.Think of an example, like the executive compensation example in the chapter, where incentives might exist to bias accounting numbers one way or another.There are other examples, but here is one that is different. A taxpayer has incentives to bias rep
6、orted income downward in order to minimize income tax payments. However, it is important to understand that tax accounting rules are different from GAAP, and this book is about GAAP. Chapter 14 covers GAAP for taxes in more detail. Other examples include:An entrepreneur seeking a loan from a bank or
7、 funding from a venture capitalist might have incentives to bias accounting numbers to look favorable.A firm that is subject to scrutiny for earning excess profits（e.g.,an oil company）might have incentives to bias accounting numbers to look less favorable.A utility subject to rate regulation might h
8、ave an incentive to bias accounting numbers to look less favorable in order to gain more generous increases in its rates. （At this writing, there is a rather severe controversy about whether electric utilities in California are genuinely in financial difficulty and should be allowed to continue to i
9、mpose large rate increase.）Chapter 2Page 381 Define assets, liabilities, and equities.Gave an example of each. How are assets valued? How are liabilities valued? An asset is a probable future economic benefit obtained orcontrolled by an entity as a result of a past transaction. Cashmarketable securi
10、ties, accounts receivable, inventories, prepaid expenses, patents, copyrights, trademarks, and property, plant and equipment are all examples of assets. A liability is a probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or provide service
11、s as a result of a past transaction or event. Accounts payable, accrued liabilities, unearned revenues, warranties, and bonds payable are all examples of liabilities.Accounting valuation of assets uses several different methods, including market value, expected realizable value, lower of cost or mar
12、ket, present value of future cash flows, and historical cost. Accounting valuation of liabilities is the expected amount that will be paid, perhaps adjusted for the time value of money.2. Explain what is meant by the entity concept.The entity is the person or organization about which accountings fin
13、ancial history is being written. 3 .A company signs a ten-year employee contract with a vice president. The salary is $ per year, guaranteed. Is this contract an asset? Would it appear on the balance sheet? Explain.The rights conveyed by the contrat may be an asset from an economic point of view, bu
14、t they are not an asset under GAAP. The contract would not appear on the balance sheet as an asset, because GAAP does not record executory contracts, which are contracts that require future performance form both parties. That is ,GAAP views the contract as determining what services will be provided,
15、 no asset is recognized under GAAP.（Neither is a liability for payment recognized until services have been performed.）4 .A company purchased a parcel of land 10 years ago at a cost of $.The land has recently been appraised at $. At what value is the land carried in the balance sheet? How does the ap
16、praisal affect the carrying value in the balance sheet?The land is on the balance sheet at its historical cost of $.The carrying value of the land is unaffected by the appraisal.Page 421、Define debit and credit .What kind of balance ,debit or credit ,would you expect to find in the inventory T-accou
17、nt？In the Common Stock T-account?A debit is an entry on the left side of a T-account. A credit is an entry on the right side of a T-account. We would except to find a debit balance in Inventory, and credit balances in Bonds Payable and Common Stock. The reason is the convention that increases in ass
18、ets are debits and increases in liabilities and equities are credits.2、If the trial balances, it means that you have analyzed all the effects of transactions correctly. True or false？Explain. False. A balanced means that the trial balance is consistent, not necessarily correct. For example. If an ar
19、bitrary entry is made that debits Cash and credits Common Stock for an equal amount, the trial balance will balance but it will be wrong. An accounting can receipt of cash and the issuance of common stock, but it alone can not make cash or additional common shares.3Suppose Web sell leases a portion
20、of its space to another company. Web sells accounts are debited and credited to record this transaction?Web sell would debit Cash and a liability, Rent Received in Advance, for the prepayment.Chapter 3Page 571. Define revenue and expense. How does one decide to list an item as revenue in an income s
21、tatement? What is matching? Revenues are increases in net assets resulting from operations over a period of time .Expense are decreases in net assets resulting from operations over a period of time .Revenue is recognized the earnings process is substantially complete , a transaction2. Give an exampl
22、e not found in the text , of an expense that is paid for in cash in a prior accounting period .In a subsequent accounting period.There are many allowable responses . An example is a patent that is purchased and paid for in one year and used in next . 3. Give an example, not found in the text , of a
23、revenue that is received in cash in a prior accounting period . In a subsequent accounting period . An example is a house painting contractor that receives payment for one-third of the contract price before beginning the painting .4. Explain why it is right to think of an asset as a cost and an expe
24、nse as an expired cost .An asset is a future benefit . And there is an opportunity cost associated with not selling it for cash or exchanging it to settle Chapter 6Page 120:1. The following table lists the adjustments and has an X in the column indicating the approach:AdjustmentEstimate expense,Plug
25、 ending balanceEstimate ending balancePlug expenseBXCDEFGHIJKM2. We first take adjustment for prepaid insurance and insurance expense. It would be easy to think of this adjustment as focusing on how much of the insurance coverage remained, as opposed to how much was used. In fact, the same type of l
26、ogic could be used-computing a monthly rate for the coverage and applying that to the months reminding, instead of the months used. Now take adjustment for depreciation expense and accumulated depreciation. Estimating the value of the equipment at year end might be easy, for example, if there is a m
27、arket for used equipment, or very difficult, for example, if the equipment was specially designed for Websell. Once a value estimate for the equipment at year end is obtained, depreciation expense would be the change in value over the year.Page 1231.$5000（1+0.06）10=$50001.79085=$8954.242.$5000（1+0.0
28、6/2）（102）=$5000（1+0.03）20=$50001.80611=$9030.563. $1000（1.05）3+$1000（1.05）2+$1000（1.05）1=$3310.134. （$10000.05/5）13+$1000（1+0.05/5）10+$1000（1+0.05/5）5=（$1000（1.01）15）+（$1000（1.01）10）+（$1000（1.01）5）=$1160.97+$1104.62+$1051.01=$3316.6Page 1241.x.（1.07）3=$3000 x=$3000/（1.07）3=$2448.892. Calculate the p
29、resent value at 10% of $1300 received two years from now. If that is greater than $1000, you are better off with the $1300 to be received in two years. If its present value is less that $1000, you better off with $1000 now. $1300/（1.10）2=$1074.38Therefore, you are better off receiving $1300 two years from now.Another way to do this problem is to take the future value at 10% of $1000. At the end of two years, the $1000 would compound u
