J. J. Kersee Corporation is a publicly traded company and is currently preparing the interim financial data that it will issue to its shareholders and the Securities Commission at the end of the first quarter of its December 31, 2011 fiscal year. Kersee’s financial accounting department has compiled the following summarized revenue and expense data for the first quarter of the year:
Sales .............. $60,000,000
Cost of goods sold ......... 36,000,000
Variable selling expenses ....... 2,000,000
Fixed selling expenses ...... 1,500,000
In the first quarter, the company spent $2 million for television advertisements as a lump sum payment for the entire year. As the company believes that it will receive a benefit for the entire year for this expenditure, it has included only one quarter ($500,000) in the fixed selling expenses. Also, included in inventory is an unfavourable variance due to prices of $245,000 that has been deferred as Kersee anticipates that this will reverse before the third quarter is complete. J. J.
Kersee Corporation must issue its quarterly financial statements in accordance with generally accepted accounting principles regarding interim financial reporting.
Instructions
(a) Explain whether Kersee should report its operating results for the quarter as if the quarter were an entirely separate reporting period or as if the quarter were an integral part of the annual reporting period.
(b) State how the sales, cost of goods sold, and fixed selling expenses would be reflected in Kersee Corporation’s quarterly report prepared for the first quarter of the 2011 fiscal year. Briefly justify your presentation.
(c) What financial information, as a minimum, must Kersee Corporation disclose to its shareholders in its quarterly reports?
(CMA adapted)