Brief Learning
Exercises Topic Objectives Skills
B. Ex. 1.1 Users of accounting information 1-1, 1-3, 1-5 Analysis
B. Ex. 1.2 Components of internal control 1-2, 1-5 Analysis
B. Ex. 1.3 Inexact or approximate measures 1-3, 1-4 Analysis, judgment
B. Ex. 1.4 Standards for the preparation of 1-5, 1-6 Analysis
accounting information
B. Ex. 1.5 FASB conceptual framework 1-1, 1-3, 1-5, 1-6Analysis
B. Ex. 1.6 PCAOB 1-5, 1-6 Analysis, research
B. Ex. 1.7 COSO 1-2, 1-5, 1-6 Analysis, ethics
B. Ex. 1.8 Professional certifications in accounting 1-7,1- 8 Analysis
B. Ex. 1.9 AICPA code of professional conduct 1-5, 1-7 Analysis, ethics
B. Ex. 1.10 Personal benefits of accounting skills 1-1 Analysis
Learning
Exercises Topic Objectives Skills
1.1 You as a user of accounting information 1-1 Analysis, judgmen
t
1.2 1-3, 1-
4
Analysis, research
Users of accounting information
1.3 What is financial reporting? 1-3 Analysis, judgmen
t
1.4 Generally accepted accounting principles 1-6 Analysis
1.5 Accounting organizations 1-6 Analysis, communicatio
n
1.6 Investment retur
n
1-3 Analysis
1.7 Accounting terminolog
y
1-3-1-5, 1-
7
Analysis
1.8 Accounting organizations 1-6 Analysis
1.9 Financial and management accounting 1-3, 1-
4
Judgmen
t
1.10 Management accounting information 1-4 Communication, judgment
1.11 Accounting organizations 1-6 Analysis, judgmen
t
1.12 Purpose of an audit 1-5 Analysis, judgmen
t
1.13 Audits of financial statements 1-5 Analysis
1.14 Ethics and professional judgment 1-7
1.15 Careers in accounting 1-8 Judgment,
1.16 Home Depot, Inc. general informatio
n
1-1, 1-3, 1-5
CHAPTER 1
ACCOUNTING: INFORMATION FOR DECISION MAKING
OVERVIEW OF BRIEF EXERCISES, EXERCISES, AND CRITICAL THINKING
CASES
Analysis,
communication,
Analysis, judgment,
research
Real World: Boeing Company,
California Public Employees
Retirement S
y
stem, China Airlines
1.1 Real World: Fannie Mae 1-5 Analysis, ethics,
Reliability of financial statements
1.2 Objectives of financial accounting 1-3
1.3 Accounting systems 1-2 Analysis, communicatio
n
1.4 1-7
1.5 1-6, 1-7 Research, technology
Analysis,
communication, group,
Analysis,
communication,
Due to the introductory nature of this chapter and the conceptual nature of its contents, no items labeled
Problems are included. In all future chapters you will find a series of Problems that generally include
computations, are more complex, and generally require more time to complete than Exercises.
Accessing information on the Internet
(Internet)
Critical Thinking Cases
Codes of ethics (Ethics, fraud, and
corporate governance)
Critical Thinking Cases
Fannie Mae
Reliabilit
y
of Financial Statements
Ob
j
ectives of Financial Accountin
g
Accountin
g
S
y
stems
Codes of Ethics
Ethics, Fraud, and Cor
p
orate Governance
Accessin
g
Information on the Internet
Internet
1.5 30 Medium
Students are introduced to learning on the Internet by accessing the Rutgers
University web page on accounting information. Once there, they learn about
accounting firms, accounting textbook publishers, and professional accounting
or
g
anizations.
1.4 30 Medium
The purpose and functions of accounting systems are covered, as well as the
definition of what an accounting system is and who is responsible for designing
and implementing accounting systems.
Students are placed in the position of a new employee who is faced with the
challenge of becoming familiar with an appropriate code of ethics and must think
through how that code might influence his/her behavior on the job.
1.3 15 Easy
Below are brief descriptions of each case. These descriptions are accompanied by the estimated time (in
minutes) required for completion and by a difficulty rating.
DESCRIPTIONS OF CRITICAL THINKING CASES
1.1 15 Easy
Characteristics of accounting and accounting information (e.g., useful for
decision making, language of business) are used to explain the importance of
accounting information.
1.2 15 Medium
This case explores the general subject of integrity in financial statements—what
causes potential investors to be able to rely on information and what precludes
management from portraying a company in more positive terms than it should.
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
1.
2.
Note to instructor: We regularly include discussion questions as part of the assigned homework. One
objective of these questions is to help students develop communications skills; however, we find that
they also increase students’ conceptual understanding of accounting.
Accounting is a way of communicating the results of business activity and, therefore, is
sometimes described as the language of business. Among the important accounting
lan
g
ua
g
e of business are costs,
p
rices, sales volume,
p
rofits, and return on investment.
4.
3.
The return of your investment is the repayment to you of the amount you invested earlier. The
The three primary objectives of financial reporting, from general to specific, are to provide:
Information that is useful in making investment and credit decisions.
claims on them.
The three primary financial statements that are the means of communicating financial
accounting information are:
Statement of financial position (balance sheet)—A statement that shows where the company
Education.
8.
9.
10.
11.
12.
13.
14.
15.
CPA means Certified Public Accountant. CMA means Certified Management Accountant.
CIA means Certified Internal Auditor. All of these are professional designations that provide
The Sarbanes-Oxley Act was passed largely in response to several major financial frauds that
occurred in 2001 and 2002. It is generally viewed as the most important legislation affecting
the accounting profession since the securities acts were passed in the 1930s. It places
Internal control is a process designed to provide reasonable assurance that the organization
produces reliable financial reports, complies with applicable laws and regulations, and
An audit is an examination of a company’s financial information, including financial
statements, by an independent expert (e.g., a Certified Public Accountant) who, in turn,
principles.
The primary role of the PCAOB in auditing financial statements is its involvement in
establishing auditing standards that are used by the Certified Public Accountants who
The FASB is the primary standard-setting body in the United States that is responsible for
establishing generally accepted accounting principles to guide the preparation of financial
comparable from one time period to another and from one reporting entity to another.
The SEC is a government body that has the legal authority to establish generally accepted
accounting principles for publicly held companies. Generally, however, the SEC has
The IASB is the organization that creates and promotes International Financial Reporting
Standards (IFRS). Its goals are to create a single set of global accounting standards and bring
about convergence to those standards. IASB standards are increasingly mandatory
Education.
B. Ex. 1.2 c.
b.
B. Ex. 1.3
B. Ex. 1.4
B. Ex. 1.5
SOLUTIONS TO BRIEF EXERCISES
External users of accounting information include investors, creditors, customers,
and regulators.
B. Ex. 1.1
Monitoring activities
Control environment
Accounting relies on inexact or approximate measures because many accounts in
financial statements are dependent on judgment about future events and on an
The Securities and Exchange Commission (SEC) has the statutory authority to
establish accounting standards for public companies in the United States. The SEC
Financial Accounting Standards Board (FASB).
The FASB’s Conceptual Framework sets forth the Board’s views on the: (1)
objectives of financial reporting, (2) desired characteristics of accounting
B. Ex. 1.6 The four primary activities of the PCAOB are: (1) registration, (2) inspections, (3)
Education.
●
B. Ex. 1.8 Although there are more than three professional certifications offered in
accounting, the three professional certifications that we discuss in this chapter
are:
Certified Public Accountants (CPA) — each state separately licenses CPAs,
Ex. 1.2 a.
b.
c.
SOLUTIONS TO EXERCISES
The following are just a few of the ways in which you might use accounting
information as a student:
Ex. 1.1
Evaluating how marriage or having a child at this stage of your life might have a
financial effect on your goals.
Deciding which school to go to, and what living accommodations you can afford.
Boeing’s financial health and future prospects affect the demand for housing (and
apartments) in much of the Seattle area. (Note to instructor: Boeing’s impact
upon Seattle’s economy is legendary. However, Seattle’s economy has become
commuting distance of Boeing’s facilities.)
As one of the world’s largest pension funds, California Public Employees
Retirement System (Cal PERS) also is one of the world’s largest stockholders.
As a student, you may be required to supply financial information about yourself
when doing such things as:
As a rapidly growing airline, China Airlines may be a major customer of Boeing
for the foreseeable future. Before ordering aircraft (which are ordered years in
advance of the delivery dates), China Airlines will want to determine that the
manufacturer has the financial capacity to fulfill the contract and also to stand
behind its aircraft in years to come. (Aircraft manufacturers, like automakers,
sometimes must recall planes to correct defects discovered after years of use.)
Applying for a credit card.
d.
e.
Ex. 1.3 a.
b.
c.
d.
Management is responsible for planning future operations, using the company’s
resources efficiently, and generally running the business. These responsibilities
The financial health and future prospects of Boeing affect the contracts that
labor unions will be able to negotiate. Boeing’s backlog of unfilled orders
Financial reporting is the process of supplying financial information about an
Financial statements are the principal accounting reports involved in the
financial reporting process. The purpose of these statements is to supply persons
Publicly owned companies are required by law to make their annual and
quarterly financial statements public—that is, available to anyone. For other
businesses, the decision to distribute financial statements to persons outside the
Financial reporting helps decision makers in utilizing scarce economic
resources efficiently. These decisions about allocation of resources determine
d.
Ex. 1.5 a.
b.
c.
Ex. 1.6 $15
,
000
Prior to the creation of the FASB, the AICPA (American Institute of Certified
Public Accountants) had responsibility for developing accounting principles.
The SEC (Securities and Exchange Commission) has the legal authority to specify
generally accepted accounting principles. However, the SEC generally has chosen
not to develop its own principles, but rather to support those of the FASB. Thus,
the SEC gives the force of law to generally accepted accounting principles. The
users need this t
yp
e of information
,
the
y
use EDGAR.
You expect two cash flows from your investment:
Financial statements are the accounting reports that should be prepared in
accordance with generally accepted accounting principles. However, the
The FASB (Financial Accounting Standards Board) is the principal authoritative
Return of investment (at maturity) …………………………………….
Return on investment (periodically, as stated in your investment