(Treatment of Various Interim Reporting Situations) The following statement is an excerpt from Paragraphs 9 and 10...

Question:

(Treatment of Various Interim Reporting Situations) The following statement is an excerpt from Paragraphs 9 and 10 of Accounting Principles Board (APB) Opinion No. 28, "Interim Financial Reporting." Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period. In general, the results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year. The Board has con- cluded, however, that certain accounting principles and practices followed for annual reporting pur- poses may require modification at interim reporting dates so that the reported results for the interim period may better relate to the results of operations for the annual period. Instructions Listed below are six independent cases on how accounting facts might be reported on an individual com- pany's interim financial reports. For each of these cases, state whether the method proposed to be used for interim reporting would be acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.

(a) B. J. King Company takes a physical inventory at year-end for annual financial statement pur- poses. Inventory and cost of sales reported in the interim quarterly statements are based on esti- mated gross profit rates, because a physical inventory would result in a cessation of operations. King Company does have reliable perpetual inventory records.

(b) Florence Chadwick Company is planning to report one-fourth of its pension expense each quarter.

(c) N. Lopez Company wrote inventory down to reflect lower of cost or market in the first quar- ter. At year-end the market exceeds the original acquisition cost of this inventory. Conse- quently, management plans to write the inventory back up to its original cost as a year-end adjustment.

(d) K. Witt Company realized a large gain on the sale of investments at the beginning of the second quarter. The company wants to report one-third of the gain in each of the remaining quarters.

(e) Alice Marble Company has estimated its annual audit fee. They plan to prorate this expense equally over all four quarters.

(f) Lori McNeil Company was reasonably certain it would have an employee strike in the third quar- ter. As a result, it shipped heavily during the second quarter but plans to defer the recognition of the sales in excess of the normal sales volume. The deferred sales will be recognized as sales in the third quarter when the strike is in progress. McNeil Company management thinks this is more representative of normal second- and third-quarter operations.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Intermediate Accounting 2007 FASB Update Volume 2

ISBN: 9780470128763

12th Edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

Question Posted: