Question 1

Which of the following observations is true of the discrete view of interim reporting?
A) An interim period is viewed as an installment of an annual period.
B) Recognition and adjustment of certain income or expense items may be affected by judgments about the expected results of the entire year's operations.
C) Each interim period is considered as a basic accounting period to be evaluated as if it were an annual accounting period.
D) One interim period would not bear the entire expense that benefits more than one interim period.

Accepted Answer

The discrete view of interim reporting considers each interim period as a basic accounting period to be evaluated as if it were an annual accounting period. Under this view, the results of each interim period are evaluated separately and not combined with the results of other interim periods to determine the annual financial statements. This approach is in contrast to the integral view of interim reporting, which views each interim period as an installment of an annual period. Choices A, B, and D are not true observations of the discrete view of interim reporting.

Question 2

How would a company report a change in an accounting principle made on the last day of the third quarter?
A) Retrospective application to all pre-change interim periods reported.
B) No change is required.
C) Apply to current and prospective interim periods only.
D) Apply to prospective interim periods only.

Accepted Answer

According to Generally Accepted Accounting Principles (GAAP), when a company changes an accounting principle, it must apply the change retrospectively to all prior periods presented in its financial statements unless it is impractical to do so. Therefore, in this scenario, the company would need to apply the change retrospectively to all pre-change interim periods reported, which would require restating financial statements for those periods.

Question 3

If a company changes the method it uses to compute the allowance for uncollectible accounts receivable because more recent information has become available, how is this change in method is accounted for?
A) The change is only reported in the current period in which the change is made.
B) The change is reported in all future periods affected by the change.
C) Previously issued financial statements are not adjusted by the change.
D) All of these are correct ways to account for the change.

Accepted Answer

The answer of If a company changes the method it...

Question 4

Estimated gross profit rates may be used to estimate a company's cost of goods sold and its ending inventory for:
A) quarterly but not for annual financial statements.
B) both quarterly and annual financial statements.
C) neither quarterly nor annual financial statements.
D) annual but not for quarterly financial statements.

Accepted Answer

The answer of Estimated gross profit rates may be used...

Question 5

ASC 280, Disclosure about Segments of an Enterprise and Related Information, has taken what has been referred to as a "management approach" to the definition of a segment and the allocation of costs to a segment.
Required:
a) What is meant by a management approach? How does this concept of a management approach impact the decision to disclose information?
b) How are decisions about cost allocation handled in segment disclosures?

Accepted Answer

The answer of ASC 280, Disclosure about Segments of an...

Question 6

Denver Company, a calendar-year corporation, had the following actual income before income tax expense and estimated effective annual income tax rates for the first three quarters in 20X8:  Denver's income tax expense in its interim income statement for the third quarter should be:
A) $126,000.
B) $68,400.
C) $62,400.
D) $54,000.

Accepted Answer

The answer of Denver Company, a calendar-year corporation, had the...

Question 7

Iona Corporation is in the process of preparing its financial statements for the first quarter of 20X9 and has asked your advice as to how to report several items. These items include the following events which took place during the first quarter of 20X9 (assume all amounts are material):
1) Iona redeemed bonds with a carrying value of $4,000,000 at a cost of $3,760,000. This early extinguishment occurred because Iona wants to issue new debt at lower interest rates.
2) Iona uses the LIFO method for its inventories. On January 1, 20X9, inventories amounted to $10,000,000, while, on March 31, 20X9, inventories totaled $9,200,000. Iona expects to replace the liquidated inventory at the beginning of the second quarter at a cost of $1,000,000.
3) Iona changed its depreciation method on $4,000,000 of its delivery trucks from the declining balance method to the straight-line method. On January 1, 20X9, accumulated depreciation under the declining balance method was $2,800,000. Had the straight-line method been used, accumulated depreciation on January 1, 20X9, would have been $2,300,000. The remaining life of the trucks is two years.
4) Iona pays its top executives a bonus at year-end of 6 percent of operating income before bonus and income taxes. Operating income before bonus and income taxes for the three months ended March 31, 20X9, was $10,000,000. Iona estimates that its yearly operating income before bonus and income taxes will be $60,000,000.
5) Iona closes its manufacturing operations in July of each year in order to make its major annual repairs. Iona estimates that the cost of these repairs in 20X9 will be $1,000,000.
Required:
For each of the events numbered 1 through 5, indicate how that event should be reported on Iona's income statement for the three months ended March 31, 20X9, and the balance sheet accounts effects at March 31, 20X9. Ignore income taxes.

Accepted Answer

The answer of Iona Corporation is in the process of...

Question 8

Lloyd Corporation reports the following information for 20X8 for its three operating segments:  
  
Indirect operating expenses are allocated to segments based upon the ratio of each segment's traceable operating expenses to total traceable operating expenses. Interest expense is allocated to segments based upon the ratio of each segment's sales to total sales.
Required:
a) Calculate the operating profit or loss for each of the segments for 20X8.
b) Determine which segments are reportable, applying the operating profit or loss test.

Accepted Answer

The answer of Lloyd Corporation reports the following information for...

Question 9

Ridge Company is in the process of determining its reportable segments for the year ended December 31, 20X8. As the person responsible for determining this information, you gather the following information:  
Required:
a) Using the appropriate tests, determine which of the industry segments listed above are reportable for 20X8. Show your supporting computations in good form.
b) Indicate whether or not Ridge's reportable segments satisfy the 75 percent test. Show your supporting computations in good form.

Accepted Answer

The answer of Ridge Company is in the process of...

Question 10

Missoula Corporation disposed of one of its segments in the second quarter and incurred a gain from disposal of discontinued segment of $600,000, net of taxes. What is the effect of this gain from disposal of discontinued segment?
A) Increase net income from operations for the year by $600,000.
B) Increase second quarter net income by $600,000.
C) Increase each quarter's net income by $150,000.
D) Increase each of the last three quarters' net income by $200,000.

Accepted Answer

The gain from disposal of discontinued segment would only impact the quarter in which it occurred, which is the second quarter. Therefore, it would increase second quarter net income by $600,000. It would not impact net income from operations for the entire year or the other quarters.

Question 11

Toledo Imports, a calendar-year corporation, had the following income before tax expense and estimated effective annual income tax rates for the first three quarters in 20X8:  Toledo's income tax expense in its interim income statement for the nine months ended September 30 and for the third quarter, respectively, are:
A) $250,800 and $103,200.
B) $252,000 and $108,000.
C) $252,000 and $103,200.
D) $250,800 and $108,000.

Accepted Answer

The answer of Toledo Imports, a calendar-year corporation, had the...

Question 12

The income tax expense applicable to the second quarter's income statement is determined by:
A) dividing the estimated annual income tax expense by four and allocating the amount to the second quarter.
B) multiplying the effective income tax rate times the income before tax for the second quarter.
C) subtracting the income tax expense applicable to the first quarter from the income tax expense applicable to the first two quarters.
D) subtracting the income tax liability applicable to the first quarter from the income tax liability applicable to the first two quarters.

Accepted Answer

The answer of The income tax expense applicable to the...

Question 13

FASB has specified a "75% percent consolidated revenue test".
Required:
a) What is the 75% test?
b) How is the 75% test impacted by the "10% Significance Rule"?

Accepted Answer

The answer of FASB has specified a "75% percent consolidated...

Question 14

ASC 270 uses which view of interim reporting?
A) Integral
B) Discrete
C) Segmental
D) Comprehensive

Accepted Answer

The answer of ASC 270 uses which view of interim...

Question 15

Frahm Company incurred a first quarter operating loss before income tax effect of $4,000,000. This is a normal occurrence for Frahm because of seasonal fluctuations. Experience has demonstrated the income earned during the remaining quarters far exceeds the first quarter losses each year. Frahm estimates its annual income tax rate will be 30 percent. What net loss should Frahm report for the first quarter?
A) $4,000,000
B) $2,800,000
C) $700,000
D) $0

Accepted Answer

Frahm should report a net loss of $2,800,000 for the first quarter. Since the estimated annual income tax rate is 30%, Frahm can deduct 30% of the first quarter operating loss from their taxes, resulting in a tax savings of $1,200,000. Therefore, the net loss for the first quarter is $4,000,000 - $1,200,000 = $2,800,000.

Question 16

Tyler Company incurred an inventory loss due to a decline in market prices during its first quarter of operations in 20X8. At the end of the first quarter, management of the company believed the decline in market prices to be permanent. In the second quarter, the market prices of Tyler's inventories increased above their acquisition cost. Market prices remained higher than acquisition cost during the remainder of 20X8. How should Tyler report the facts above on its first and second quarter income statements? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of Tyler Company incurred an inventory loss due...

Question 17

The information below is for the second quarter of Tampa Company for 20X8:  
Required:
Prepare an interim income statement for the second quarter for Tampa Company. Assume the LIFO liquidation is expected to be restored by the end of 20X8.

Accepted Answer

The answer of The information below is for the second...

Question 18

Davis Company uses LIFO for all of its inventories. During its second quarter of 20X9, Davis experienced a LIFO liquidation. Davis fully expects to replace the liquidated inventory in the early part of the third quarter. How should Davis report the inventory temporarily liquidated on its income statement for the second quarter?
A) Cost of goods sold for the second quarter should include the acquisition cost of the goods temporarily liquidated.
B) Cost of goods sold for the second quarter should include the expected replacement cost of the goods temporarily liquidated.
C) Cost of goods sold for the second quarter should not include the expected replacement cost of the goods temporarily liquidated.
D) Cost of goods sold for the second quarter is not affected by the temporary liquidation of LIFO inventory.

Accepted Answer

The answer of Davis Company uses LIFO for all of...

Question 19

Mason Company paid its annual property taxes of $240,000 on February 15, 20X9. Mason also anticipates that its annual repairs expense for 20X9 will be $1,200,000. This amount is usually incurred and paid in July and August when operations are shut down so that machinery and equipment can be repaired. What amount should Mason deduct for property taxes and repairs in each quarter for 20X9? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of Mason Company paid its annual property taxes...

Question 20

All of the following situations require a retrospective application of a change in a reporting entity except for:
A) Presenting consolidated financials rather than individual statements for separate entities
B) Changing the specific subsidiaries that make up a consolidated entity.
C) Presenting foreign subsidiaries in addition to domestic subsidiaries.
D) Changing entities that are included in combined financial statements.

Accepted Answer

The presentation of foreign subsidiaries in addition to domestic subsidiaries does not require a retrospective application of a change in a reporting entity. This is because it does not change the composition of the reporting entity or the entities included in financial statements. Choices A, B, and D all involve changes in the composition of the reporting entity or entities included in financial statements, requiring a retrospective application of the change.

Quiz 13: Segment and Interim Reporting

Which of the following observations is true of the discrete view of interim reporting?

How would a company report a change in an accounting principle made on the last day of the third quarter?

If a company changes the method it uses to compute the allowance for uncollectible accounts receivable because more recent information has become available, how is this change in method is accounted for?

Estimated gross profit rates may be used to estimate a company's cost of goods sold and its ending inventory for:

Denver Company, a calendar-year corporation, had the following actual income before income tax expense and estimated effective annual income tax rates for the first three quarters in 20X8: Denver's income tax expense in its interim income statement for the third quarter should be:

Missoula Corporation disposed of one of its segments in the second quarter and incurred a gain from disposal of discontinued segment of $600,000, net of taxes. What is the effect of this gain from disposal of discontinued segment?

The income tax expense applicable to the second quarter's income statement is determined by:

FASB has specified a "75% percent consolidated revenue test". Required: a) What is the 75% test? b) How is the 75% test impacted by the "10% Significance Rule"?

ASC 270 uses which view of interim reporting?

The information below is for the second quarter of Tampa Company for 20X8: Required: Prepare an interim income statement for the second quarter for Tampa Company. Assume the LIFO liquidation is expected to be restored by the end of 20X8.

All of the following situations require a retrospective application of a change in a reporting entity except for: