chap002accountingtextandcases13esolutionManual1.docx

chap002accountingtextandcases13esolutionManual1.docx

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chap002accountingtextandcases13esolutionManual1

Chapter2

BASICACCOUNTINGCONCEPTS:

THEBALANCESHEET

ChangesfromTwelfthEdition

TheChapterhasbeenupdated.

Approach

Itishelpfulifstudentsunderstandfromtheoutsetthatfinancialaccountingisbeingdiscussedintwocycles.Inthefirstcycle,Chapters2through4,wegothroughtheentireaccountingprocessquickly,toestablishanoverview.Wethengothroughtheprocessasecondtime,inChapters5through14,andgointothesametopicsinmuchgreaterdepth.Thus,studentsshouldnotbeconcernediftheydonotunderstandallthefinepointsinChapters24,forthesewillbediscussedagaininsubsequentchapters.Neithershouldtheybepermittedtobelaborquestionsthatinvolvefinedistinctions;theobjectivehereistogetthebroad,overallpicture.

Ourexperienceinvariablyhasbeenthatbeginningstudentsfindtheintroductiontoaccountingquiteconfusing.Althoughtheymaybeabletodotheworkassignedeachday,theyareunabletovisualizethewholestructureofaccounts.Thisleadstoafeelingoffrustrationthatmaylastseveralweeks.Then,allofasudden,thepiecesfallintoplace.Fromthattimeforwardtheyhavenospecialtroubleandcanfiteachnewconceptintoitsproperplacewithoutdifficulty.Usually,the“greatawakening”comesbyChapter6,butitmaynotcomeuntilevenlater.Wedonotknowofanywayofeliminatingthisinitialfrustration.

Wegothroughthetextbriefly,mostlytoencouragequestionsthatwillhelpclearupobscurepoints.Weusuallyexplainthatwedonotexpectthatallmattersdiscussedinthischapterwillimmediatelybeclear.Forthisreason,studentsmaywishtoreferbacktothisandtootherchaptersinPart1,astheneedarises.

Manyinstructorsliketoemphasizethenotionofbalancesheetchanges,andthiscanbedonebyaddingmoretransactionstoMusicMart.Transactionscanbecalledoutasfastastheinstructororstudentsthinkofthem,andstudentsshouldseethatitispossibletorecordanytransactionwhatsoeverintermsofitseffectonthebalancesheet.Thislaysafoundationthatisoftenhelpfulwhencomplexormechanicalmattersarediscussedlateron.

Inthisandthenexttwoorthreechapters,afairlyuniformterminologyhasbeenusedinbothtextandcases.Thisisartificialsincepracticeincompaniesvarieswidely,butitservestoreducesomeoftheinitialconfusiononthepartofthestudent.BeginningwithChapter6,variationsinterminologyappearwithincreasingfrequencyinthecases,butthetextretainsterminologythatseemstobefavoredbytheFASB,sofaraswecangleanfromitspronouncementsandthoseofpredecessorbodies.Also,inthetext,wehavemadeanefforttousefinancialstatementformatsthatreflectFASBpreferences（although,unlessspecificallynoted,thefinancialstatementscanbeconstructedequallywellwithotherformatsandformatshouldnotbeoverlyemphasized.）

Somereadersofthismaterialhavesaidthatittendstobelittleaccountingandaccountants.Wecertainlydonotintendtogivesuchimpression.Itistruethatthetextdoesattempttosetforththelimitationsonaccountinginformation,anditdoesnotimplythataccountingisanexactscience.Thisisnotdonetobelittlethesubjectoritspractitioners,however.Studentswhoarepermittedtogettheimpressionthataccountingisexact,orthatitdoesgiveanaccuratepictureofabusiness,areinforarudeawakeningwhentheygetoutintoactualbusinesssituations.Wethink,therefore,thatitismostunfortunateifsuchanimpressionispermittedtodevelop.SeveralCPAsandcontrollerswhohaveparticipatedinexecutivedevelopmentprogramshavesaidthatoneofthechiefvaluesofourapproachisthatitdoesshowthelimitationsaswellastheusefulnessofaccounting.Theysaythatoneoftheirprincipalpracticalproblemsisthatsomeuninformedpeopleexpecttoomuchofaccountingandaredisappointedordisgruntledwhentheaccountantcannotfurnishthemwithpreciseorcompleteinformation.Itispossiblethatmisconceptionsofthesepeoplearegeneratedfromexposuretoacourseinwhichthevalueofaccountingwasoveremphasizedanditslimitationsomitted.

Theforegoingdoesnotmeanthatoneshouldeverapologizeforthelimitationsofaccounting.Fromtimetotimeitshouldbepointedoutthattheselimitationsareinherentinthejobofattemptingtoreducethecomplexitiesofanactualbusinesssituationtoafewmonetaryfigures.Incidentally,weunderstandthatphysicsteachersgotthemselvesintoconsiderabletroublesomeyearsagobyoveremphasizingtheaccuracyandcompletenessofourknowledgeaboutphysicalphenomena.Theircurrentpractice,weunderstand,istoexplainwhatisnotknown.

Cases

Cases21and22providepracticeworkforbeginningstudents.Thesetwoaremechanicalproblemstobeworkedasthetext