The unaudited quarterly statements of income issued by many corporations to their stockholders are usually prepared on the same basis as annual statements— the statement for each quarter reflects the transactions of that quarter.

Required:

a. Why do problems arise in using such quarterly statements to predict the income (before extraordinary items) for the year? Explain.

b. Discuss the ways quarterly income can be affected by the behavior of the costs recorded in an account for repairs and maintenance of factory machinery.

c. Do such quarterly statements give management opportunities to manipulate the results of operations for a quarter? If so, explain or give an example.