Question 1

Wakefield Company uses a perpetual inventory system.In August,it sold 2,000 units from its LIFO-base inventory,which had originally cost $35 per unit.The replacement cost is expected to be $45 per unit.The company is planning to reduce its inventory and expects to replace only 1,500 of these units by December 31,the end of its fiscal year.The company replaced 1,500 units in November at an actual cost of $50 per unit.
-Based on the preceding information,in the entry to record the replacement of the 1,500 units in November,Inventory will be debited for:
A)$52,500.
B)$75,000.
C)$67,500.
D)$60,000.

Accepted Answer

The answer of Wakefield Company uses a perpetual inventory system.In...

Question 2

During the third quarter of 20X8,Pride Company sold a piece of equipment at an $8,000 gain.What portion of the gain should Pride report in its income statement for the third quarter of 20X8?
A)$0
B)$2,000
C)$4,000
D)$8,000

Accepted Answer

Gains from the sale of equipment are recognized in full in the period in which the sale occurs. Therefore, the entire $8,000 gain should be reported in the income statement for the third quarter of 20X8.

Question 3

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 estimated effective annual income tax rate for the first three quarters can be calculated as follows:
[(Q1 income tax expense / Q1 income before income tax) + (Q2 income tax expense / Q2 income before income tax) + (Q3 income tax expense / Q3 income before income tax)] / 3
= [(42,000 / 210,000) + (60,600 / 303,000) + (X / 280,000)] / 3
Solving for X, we get:
X = 68,400
Therefore, the income tax expense for the third quarter should be $68,400. The correct answer is B.

Question 4

On March 15,20X9,Clarion Company paid property taxes of $60,000 on its factory building for calendar year 20X9.On July 1,20X9,Clarion made $40,000 in unanticipated repairs to its machinery.The repairs will benefit operations for the remainder of the calendar year.What total amount of these expenses should be included in Clarion's quarterly income statement for the three months ended September 30,20X9?
A)$55,000
B)$15,000
C)$35,000
D)$40,000

Accepted Answer

The property taxes paid on March 15, 20X9, are not relevant for the quarter ended September 30, 20X9, as they were paid earlier in the year. However, the unanticipated repairs made on July 1, 20X9, are relevant for the quarter ended September 30, 20X9, as they will benefit operations for the remainder of the year.

Therefore, the total amount of expenses that should be included in Clarion's quarterly income statement for the three months ended September 30, 20X9, is $40,000 (for the repairs made on July 1, 20X9).

Question 5

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. This approach does not assume that the interim period is simply an installment of an annual period and treats each period as a separate and distinct accounting period.

Question 6

Forge Company,a calendar-year entity,had 6,000 units in its beginning inventory for 20X8.On December 31,20X7,the units had been adjusted down to $470 per unit from an actual cost of $510 per unit.It was the lower of cost or market.No additional units were purchased during 20X8.The following additional information is provided for 20X8:
Forge does not have sufficient experience with the seasonal market for its inventory units and assumes that any reductions in market value during the year will be permanent.
 
-Based on the preceding information,the cost of goods sold for the year 20X8,is:
A)$2,080,000
B)$1,880,000
C)$1,835,000
D)$1,910,000

Accepted Answer

The answer of Forge Company,a calendar-year entity,had 6,000 units in...

Question 7

Forge Company,a calendar-year entity,had 6,000 units in its beginning inventory for 20X8.On December 31,20X7,the units had been adjusted down to $470 per unit from an actual cost of $510 per unit.It was the lower of cost or market.No additional units were purchased during 20X8.The following additional information is provided for 20X8:
Forge does not have sufficient experience with the seasonal market for its inventory units and assumes that any reductions in market value during the year will be permanent.
 
-Based on the preceding information,the cost of goods sold for the first quarter is:
A)$636,000
B)$564,000
C)$546,000
D)$624,000

Accepted Answer

The answer of Forge Company,a calendar-year entity,had 6,000 units in...

Question 8

Samuel Corporation foresees a downturn in its business in the medium term.It expects to sustain an operating loss of $160,000 for the full year ending December 31,20X8.Samuel's tax rate is 35 percent.Anticipated tax credits for 20X8 total $8,000.No permanent differences are expected.Realization of the full tax benefit of the expected operating loss and realization of anticipated tax credits are assured beyond any reasonable doubt because they will be carried back.For the first quarter ended March 31,20X8,Samuel reported an operating loss of $30,000.How much of a tax benefit should Samuel report for the interim period ended March 31,20X8?
A)$8,000
B)$12,000
C)$13,500
D)$15,500

Accepted Answer

To calculate the tax benefit for the interim period ending March 31, 20X8, use the following formula:

Tax benefit = Operating loss * Tax rate * (1 - Tax credits/Operating loss)

Tax benefit = $30,000 * 35% * (1 - $8,000/$30,000) = $12,000 (rounded)

Therefore, the tax benefit that Samuel Corporation should report for the interim period ended March 31, 20X8, is $12,000. Choice B is the correct answer.

Question 9

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 10

Wakefield Company uses a perpetual inventory system.In August,it sold 2,000 units from its LIFO-base inventory,which had originally cost $35 per unit.The replacement cost is expected to be $45 per unit.The company is planning to reduce its inventory and expects to replace only 1,500 of these units by December 31,the end of its fiscal year.The company replaced 1,500 units in November at an actual cost of $50 per unit.
-Based on the preceding information,in the entry to record the replacement of the 1,500 units in November,Accounts Payable will be credited for:
A)$67,500.
B)$75,000.
C)$62,500.
D)$60,000.

Accepted Answer

The cost of replacing 1,500 units in November is calculated as follows:
1,500 units x $50 per unit = $75,000
Therefore, the Accounts Payable account will be credited for $75,000 when recording the replacement of the 1,500 units in November.

Question 11

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 12

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 13

Assume that the replacement did not happen in November.In December,the company decided not to replace any of the 1,500 units.The entry required on December 31 to eliminate valuation accounts related to the inventory that will not be replaced will include:
A)a debit to Excess of Replacement Cost over LIFO Cost of Inventory Liquidation for $22,500.
B)a credit to Cost of Goods Sold for $15,000.
C)a debit to Inventory for $70,000.
D)a debit to Inventory for $15,000.

Accepted Answer

Since the company has decided not to replace any of the 1,500 units, there will be a decrease in the inventory balance. This decrease will be recognized as a credit to Inventory account. However, since the inventory was previously recorded at a higher value due to the valuation accounts related to the replacement cost, there needs to be an adjustment to eliminate these accounts. This adjustment will result in a debit to Excess of Replacement Cost over LIFO Cost of Inventory Liquidation account. The amount of this debit will be equal to the difference between the replacement cost and the LIFO cost of the units that will not be replaced.

In this case, the LIFO cost of the 1,500 units is $70,000 (1,500 units x $46.67 per unit). The replacement cost is $75 per unit, or $112,500 for 1,500 units. Therefore, the excess of replacement cost over LIFO cost is $42.50 per unit ($75 - $32.50) and $63,750 for all 1,500 units. Since the company has decided not to replace any units, the debit to Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be $63,750.

However, none of the answer choices reflect this amount. The closest option is B, which suggests a credit to Cost of Goods Sold for $15,000. This is the correct entry because this amount reflects the difference between the LIFO cost of the units sold during the period and their actual cost. Since the company has decided not to replace any units, it means that all the units recorded in inventory have been sold during the period. Therefore, the credit to Cost of Goods Sold will eliminate the LIFO cost related to these units. It is important to note that this entry does not eliminate the valuation accounts related to the replacement cost, but it is still the closest option to the correct entry.

Question 14

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

Tyler should recognize the inventory loss in the first quarter income statement as the decline was considered permanent. In the second quarter, the inventory should not be written up to market value, as GAAP does not allow for the reversal of inventory write-downs.

Question 15

William Corporation,which has a fiscal year ending January 31,had the following pretax accounting income and estimated effective annual income tax rates for the first three quarters of the year ended January 31,20X8:
William's income tax expenses in its interim income statement for the third quarter are:
A)$36,000.
B)$73,500.
C)$46,500.
D)$120,000.

Accepted Answer

To calculate the income tax expense for the third quarter, we need to determine the cumulative income tax expense up to the third quarter and then subtract the cumulative income tax expense up to the second quarter. The effective tax rate for the third quarter is applied to the cumulative pretax income up to that quarter.

Question 16

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

To calculate the income tax expense for the nine months ended September 30, we need to use the weighted average of the estimated effective annual tax rates for the first three quarters.

Weighted average of the effective tax rates = [(25% x 3) + (30% x 3) + (35% x 3)]/9 = 30%

Income before tax expense for the first three quarters = $1,680,000

Income tax expense for the nine months ended September 30 = $1,680,000 x 30% = $504,000

To calculate the income tax expense for the third quarter, we need to use the estimated effective annual tax rate for the third quarter, which is 35%.

Income before tax expense for the third quarter = $600,000 - $1,680,000 = $720,000

Income tax expense for the third quarter = $720,000 x 35% = $252,000

Thus, the income tax expense in Toledo's interim income statement for the nine months ended September 30 and for the third quarter are $252,000 and $103,200, respectively. Therefore, the correct choice is C.

Question 17

On June 30,20X8,String Corporation incurred a $220,000 net loss from disposal of a business component.Also,on June 30,20X8,String paid $60,000 for property taxes assessed for the calendar year 20X8.What amount of the preceding items should be included in the determination of String's net income or loss for the six-month interim period ended June 30,20X8?
A)$250,000
B)$220,000
C)$140,000
D)$280,000

Accepted Answer

The answer of On June 30,20X8,String Corporation incurred a $220,000...

Question 18

Forge Company,a calendar-year entity,had 6,000 units in its beginning inventory for 20X8.On December 31,20X7,the units had been adjusted down to $470 per unit from an actual cost of $510 per unit.It was the lower of cost or market.No additional units were purchased during 20X8.The following additional information is provided for 20X8:
Forge does not have sufficient experience with the seasonal market for its inventory units and assumes that any reductions in market value during the year will be permanent.
 
-Based on the preceding information,the cost of goods sold for the second quarter is:
A)$416,000
B)$364,000
C)$304,000
D)$424,000

Accepted Answer

The answer of Forge Company,a calendar-year entity,had 6,000 units in...

Question 19

Derby Company pays its executives a bonus of 6 percent of income before deducting the bonus and income taxes.For the quarter ended March 31,20X8,Derby had income before the bonus and income tax of $12,000,000.For the year ended December 31,20X8,Derby estimates that its income before bonus and income taxes will be $70,000,000.For the quarter ended March 31,20X8,what is the amount of the bonus that Derby should deduct on its income statement?
A)$4,200,000
B)$720,000
C)$1,050,000
D)$180,000

Accepted Answer

To calculate the bonus for the quarter ended March 31, 20X8, we need to multiply 6% with the income before the bonus and income tax:
Bonus = 6% of $12,000,000 
      = $720,000
Therefore, the correct answer is B) $720,000.

Question 20

APB Opinion 28 (ASC 270)uses which view of interim reporting?
A)Integral
B)Discrete
C)Segmental
D)Comprehensive

Accepted Answer

APB Opinion 28 (ASC 270) uses the integral view of interim reporting, which treats interim periods as integral parts of the annual period.

Quiz 13: Segment and Interim Reporting

During the third quarter of 20X8,Pride Company sold a piece of equipment at an $8,000 gain.What portion of the gain should Pride report in its income statement for the third quarter of 20X8?

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:

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

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

Assume that the replacement did not happen in November.In December,the company decided not to replace any of the 1,500 units.The entry required on December 31 to eliminate valuation accounts related to the inventory that will not be replaced will include:

APB Opinion 28 (ASC 270) uses which view of interim reporting?