Question 1

Which of the following statements about interim reporting is false?
A) If a company reports year-to-date financial information for the current year, it also must report the last twelve month-to-date information.
B) Under some circumstances, a company can restate the financial information of an earlier current-year quarter.
C) Tax benefits arising from earlier interim periods in the current year can be carried forward to the current interim period to offset tax expense.
D) The total of all nonordinary losses in the current quarter multiplied by the effective tax rate equals the amount of tax expense to be allocated among those losses.

Accepted Answer

A company is not required to report the last twelve month-to-date information when providing year-to-date financial information for the current year.

Question 2

For interim reporting, which of the following statements is true?
A) Under a standard cost system, unplanned or unanticipated variances should be recognized in the quarter in which they occur.
B) Under the LIFO method, recognition of layer liquidations, thought to be temporary, are postponed by using replacement cost in the calculation of interim cost of goods sold.
C) Under the lower of cost or market determination of ending inventory, a gain may not be recognized in an interim period.
D) All of these statements are true.

Accepted Answer

B

Question 3

In order to generate interim financial reports that contain a reasonable portion of annual expenses, which of the following statements is true?
A) an allocation of a portion of an annual bonus would be made as an interim adjustment
B) any adjustments for inventory shrinkage would be deferred to year end
C) the allowance for uncollectible accounts receivable will be revised at year end
D) None of the above are true

Accepted Answer

Allocating a portion of an annual bonus as an interim adjustment is a valid way to generate interim financial reports that contain a reasonable portion of annual expenses. However, deferring adjustments for inventory shrinkage and revising the allowance for uncollectible accounts receivable at year-end would not accurately reflect the expenses for the interim period. Therefore, B and C are incorrect.

Question 4

When a company makes a second quarter decision to discontinue a segment, the first quarter tax expense:
A) Results are not restated.
B) is split between the tax expense calculated on restated quarter one income from continuing operations and the discontinued segment by subtracting the tax expenses calculated on the restated first quarter income from the original tax expense calculated for the first quarter, before the decision was made.
C) is used to determine the incremental tax effect.
D) is used to calculate the effective tax rate for the discontinued segment.

Accepted Answer

When a company makes a second quarter decision to discontinue a segment, the first quarter tax expense is split between the tax expense calculated on restated quarter one income from continuing operations and the discontinued segment by subtracting the tax expenses calculated on the restated first quarter income from the original tax expense calculated for the first quarter, before the decision was made. This is because the decision to discontinue the segment impacts the tax expense for the first quarter as well.

Question 5

Nonordinary items resulting in income or loss
A) include unusual but not infrequent gains.
B) are treated the same as ordinary items when calculating the effective tax rate.
C) are always treated as a total group when calculating the effective rate for the quarter.
D) are always excluded from interim reporting.

Accepted Answer

Nonordinary items resulting in income or loss include unusual gains or losses that are not expected to occur regularly or frequently. These items are typically reported separately on financial statements and can have a significant impact on the company's overall financial performance. When calculating the effective tax rate, nonordinary items may be treated differently than ordinary items, depending on the specific circumstances.

Question 6

Abel Corporation sold equipment in the first quarter of 20X5 at a $150,000 loss. How much of the loss should appear in the 20X5 second- and third-quarter income?
A) $37,500 and $37,500
B) $50,000 and $50,000
C) $0 and $0
D) $100,000 and $0

Accepted Answer

Gains and losses that would not be deferred at year-end should not be deferred to later interim periods within the same fiscal year.

Question 7

Which of the following statements is NOT true concerning the determination of the effective tax rate to be used for interim reporting?
A) Tax rate changes should not be accounted for retroactively.
B) The effective tax rate for the entire year should be estimated.
C) The effective tax rate should reflect anticipated tax credits.
D) The estimated tax rate should reflect extraordinary items.

Accepted Answer

The estimated tax rate should not reflect extraordinary items because they are separately disclosed on the income statement and not included in the calculation of income tax expense.

Question 8

During the first quarter, a company's application of lower of cost or market methods indicated a $150,000 loss from a temporary market decline, which is expected to be restored in the fiscal year. During the second quarter, the market reversed the decline. Which of the following situations indicates a proper treatment of these facts?
A) A $37,500 loss recognized in the first quarter and no recovery recognized in the second quarter.
B) A $150,000 loss recognized in the first quarter and a $90,000 recovery in the second quarter.
C) A $150,000 loss recognized in the first quarter and a $50,000 recovery in the second quarter.
D) No loss recognized in the first quarter and no recovery recognized in the second quarter.

Accepted Answer

The answer of During the first quarter, a company's application...

Question 9

Which of the following is NOT considered when determining whether an operating segment qualifies as a reportable segment?
A) revenue of the segment
B) the assets of the segment
C) the number of foreign offices
D) the absolute amount of its profit or loss

Accepted Answer

The number of foreign offices is not one of the criteria typically considered when determining whether an operating segment qualifies as a reportable segment. The criteria usually include factors such as the revenue of the segment, the assets of the segment, and the absolute amount of its profit or loss.

Question 10

The acquisition of a paper mill by a large publishing company is an example of
A) horizontal integration.
B) vertical integration.
C) diversification.
D) consolidation.

Accepted Answer

The acquisition of a paper mill, which is a supplier of raw materials for the publishing company, is an example of vertical integration. This means the publishing company is acquiring a company in the same industry, but in a different stage of the supply chain.

Question 11

Which of the following best describes the treatment given a change in accounting principles made during the second quarter?
A) The cumulative effect should be recognized in the quarter in which the decision to change is made.
B) Regardless of the quarter of change, the recognition is deferred until year end.
C) All prior interim periods are retrospectively restated.
D) Interim periods prior to the period of change are not restated.

Accepted Answer

According to accounting standards, when there is a change in accounting principles, all prior interim periods should be retrospectively restated to reflect the impact of the change. Therefore, option C is the correct choice.

Question 12

The primary emphasis of interim reporting is on:
A) interim cash flow
B) the interim statement of financial position
C) interim retained earnings
D) interim income data

Accepted Answer

The primary emphasis of interim reporting is on providing interim income data, which includes revenue, expenses, gains, and losses, for a period shorter than a full year. This helps users of financial statements to evaluate the performance of a company during the course of a year and make informed decisions about investing or lending to the company. While cash flow, statement of financial position, and retained earnings may also be included in interim reporting, they are not the primary emphasis.

Question 13

Which of the following best describes how the tax benefit resulting from the extraordinary loss in an interim period is recognized?
A) The tax benefit is recognized in the period in which it occurs using the estimated effective rate.
B) The tax benefit is recognized in the period in which it occurs using the average tax rate for all income.
C) The tax benefit is allocated over the current and remaining periods using the estimated effective rate.
D) The tax benefit is recognized only if, more likely than not, the loss may be offset against income.

Accepted Answer

The answer of Which of the following best describes how...

Question 14

Which of the following is not a limitation on the number of reportable segments?
A) Consistency, i.e., the number of reportable segments this period, must be the same as last period.
B) Usually the number of segments should not exceed 10.
C) At least 75% of the combined revenue of sales to unaffiliated firms should be traceable to reportable segments.
D) None of the above is a limitation.

Accepted Answer

The requirement for consistency in the number of reportable segments from one period to the next is not a recognized limitation on the number of reportable segments. The other options (B and C) are actual considerations or guidelines in determining reportable segments, but there is no rule that mandates the number of segments to remain consistent across reporting periods.

Question 15

The incremental income tax effect utilized to determine the tax effect of an extraordinary item is calculated by:
A) applying the estimated effective tax rate against the amount of the extraordinary item
B) the difference between the gross tax calculated on continuing operations and the gross tax on income from all sources, before tax credits are applied.
C) the difference between the estimated net tax calculated on the projected annual income from continuing operations and the estimated net tax calculated on projected annual income, including the non-ordinary items, after tax credits have been considered
D) none of the above.

Accepted Answer

The incremental income tax effect is calculated by comparing the net tax on projected annual income from continuing operations with the net tax on projected annual income including extraordinary items, after considering tax credits.

Question 16

Which of the following items should be disclosed with interim data?
A) basic and diluted earnings per share
B) contingent items
C) changes in accounting estimates
D) all of the above

Accepted Answer

All of the above items should be disclosed with interim data. Basic and diluted earnings per share, contingent items, and changes in accounting estimates are important information that investors and stakeholders need to make informed decisions about the company's financial health and future prospects.

Question 17

If a company is utilizing LIFO inventory costing, what might be the effect on the calculation of Cost of Goods sold in an interim financial statement?
A) cost of goods sold is calculated on a historical cost basis only
B) the interim cost of goods sold includes the replacement cost of temporarily liquidated inventory
C) cost of goods sold is not adjusted for any changes due to liquidation of LIFO inventory
D) any of the effects of liquidation are deferred until year end

Accepted Answer

In LIFO inventory costing, the cost of goods sold is calculated based on the last inventory items purchased, which are generally the most expensive due to inflation. Therefore, if there is a temporary liquidation of inventory, the cost of goods sold will include the replacement cost of that liquidated inventory, which could lower the overall cost of goods sold. This will be reflected in the interim financial statement.

Question 18

Abitz Corporation has the following pretax operating income in its first three quarters of 20X5. The effective tax rate for each quarter is provided. Determine the third quarter income tax or benefit. 
A) $3,750
B) $15,000
C) $15,750
D) $20,000

Accepted Answer

To calculate the third quarter income tax or benefit, we need to add up the pretax operating income from the first three quarters and then calculate the tax expense using the effective tax rates.

Pretax operating income for Q1 = $100,000 
Effective tax rate for Q1 = 25% 
Tax expense for Q1 = $100,000 x 25% = $25,000

Pretax operating income for Q2 = $120,000 
Effective tax rate for Q2 = 30% 
Tax expense for Q2 = $120,000 x 30% = $36,000

Pretax operating income for Q3 = $150,000 
Effective tax rate for Q3 = 35% 
Tax expense for Q3 = $150,000 x 35% = $52,500

Total tax expense for first three quarters = $25,000 + $36,000 + $52,500 = $113,500 
Total pretax income for first three quarters = $100,000 + $120,000 + $150,000 = $370,000

Income tax or benefit for Q3 = (total tax expense for first three quarters) - (total pretax income for first three quarters) 
= $113,500 - $370,000 
= -$256,500

Since the income tax or benefit for Q3 is negative, it means that there is a tax benefit of $15,750 ($256,500 x -1 x 35%) in the third quarter. Therefore, the correct answer is C.

Question 19

In determining if two operating segments may be combined into one, which of the following factors should be considered?
A) similarities regarding profit margins
B) whether the nature of the products and services is similar
C) whether there is a similar amount of intracompany sales
D) whether there is a similar number of employees

Accepted Answer

The nature of the products and services is one of the most important factors in determining if two operating segments may be combined into one. This is because similar products and services are likely to face similar economic and competitive factors, and to require similar managerial skills and resources. Factors such as profit margins, intracompany sales, and number of employees may also be relevant, but they are secondary to the nature of the products and services.

Question 20

Which of the following best describes the proper accounting for interim financial reports?
A) The interim period is viewed as an integral part of the annual accounting period.
B) The interim period is viewed as a distinct, independent accounting period.
C) Interim net income should be determined by using the same principles as those for the annual accounting period.
D) Net income should be computed on the cash basis except for sales, cost of goods sold, and depreciation.

Accepted Answer

Interim financial reports should be viewed as an integral part of the annual accounting period, and therefore the principles and methods used to prepare the annual financial statements should also be applied to interim financial reports. This ensures consistency and comparability between the interim and annual financial statements.

Quiz 12: Interim Reporting and Disclosures About Segments of an Enterprise

Which of the following statements about interim reporting is false?

For interim reporting, which of the following statements is true?

In order to generate interim financial reports that contain a reasonable portion of annual expenses, which of the following statements is true?

When a company makes a second quarter decision to discontinue a segment, the first quarter tax expense:

Nonordinary items resulting in income or loss

Abel Corporation sold equipment in the first quarter of 20X5 at a $150,000 loss. How much of the loss should appear in the 20X5 second- and third-quarter income?

Which of the following statements is NOT true concerning the determination of the effective tax rate to be used for interim reporting?

Which of the following is NOT considered when determining whether an operating segment qualifies as a reportable segment?

The acquisition of a paper mill by a large publishing company is an example of

Which of the following best describes the treatment given a change in accounting principles made during the second quarter?

The primary emphasis of interim reporting is on:

Which of the following best describes how the tax benefit resulting from the extraordinary loss in an interim period is recognized?

Which of the following is not a limitation on the number of reportable segments?

The incremental income tax effect utilized to determine the tax effect of an extraordinary item is calculated by:

Which of the following items should be disclosed with interim data?

If a company is utilizing LIFO inventory costing, what might be the effect on the calculation of Cost of Goods sold in an interim financial statement?

Abitz Corporation has the following pretax operating income in its first three quarters of 20X5. The effective tax rate for each quarter is provided. Determine the third quarter income tax or benefit.

In determining if two operating segments may be combined into one, which of the following factors should be considered?

Which of the following best describes the proper accounting for interim financial reports?