Reviewer in interim reporting and accrual PDF

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Interim Financial ReportingQuestion ANSWER:ASC 270, Interim Reporting, concluded that interim financial reporting should be viewed primarily in which of the following ways?a) As useful only if activity is spread evenly throughout the year. b) As if the interim period were an annual accounting period...

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Interim Financial Reporting

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ANSWER:

ASC 270, Interim Reporting, concluded that c) As reporting for an integral part of an interim financial reporting should be viewed annual period. primarily in which of the following ways? The fundamental principle underlying interim a) As useful only if activity is spread evenly reporting is that interim reports should be throughout the year. considered an integral part of the annual b) As if the interim period were an annual reporting period. This has important accounting period. implications for interim reporting. There are c) As reporting for an integral part of an exceptions to this principle, however. annual period. d) As reporting under a comprehensive basis of accounting other than GAAP A planned volume variance in the first quarter, which is expected to be absorbed by the end of the fiscal period, ordinarily should be deferred at the end of the first quarter if it is: Favorable Unfavorable a) Yes No b) No Yes c) No No d) Yes Yes

d) Yes Yes Paragraph 14.d. of APB Opinion 28 states: "Purchase price variances or volume or capacity cost variances that are planned and expected to be absorbed by the end of the annual period, should ordinarily be deferred at interim reporting dates." The reason for the deferral is that, from the point of view of the entire reporting year, there will be no volume variance. The Opinion requires the integral view of interim reporting for most items - that an interim period is an integral part of the annual period. Recognizing, rather than deferring, the variance in the first quarter would cause the reporting of the first quarter results to be unrepresentative of the annual period of which it is a part.

Kell Corp. reported $111,000 of net income a) $91,000 for the quarter ended September 30, 20X5. The gain from discontinued operations Additional information for the quarter: should be recognized entirely in the second A $60,000 gain from discontinued operation, quarter. There is no meaningful basis on realized on April 30, 20X5, was allocated which to allocate the gain. It is a one-time equally to the second, third, and fourth occurrence. The cumulative effect is not recognized in income. The firm's treatment of quarters of 2005. A $16,000 cumulative-effect adjustment (dr.) the property tax cost is correct. The cost resulting from a change in inventory relates to the entire year. Therefore, each valuation method was recognized on August quarter should bear 1/4 of the cost. 2, 20X5. The new method was used for the quarter ended September 30. The $111,000 Third quarter net income = $91,000 = earnings amount does not reflect the $111,000 − $60,000/3. cumulative effect. In addition, Kell paid $48,000 on February 1, 20X5, for 20X5 calendar-year property taxes. Of this amount, $12,000 was allocated to the third quarter of 20X5. For the quarter ended September 30, 20X5, Kell should report net income of: a) $91,000 b) $75,000 c) $111,000 d) $95,000

Accrual Accounting U Co. had cash purchases and payments on account during the current year totaling $455,000. U's beginning and ending accounts payable balances for the year were $64,000 and $50,000, respectively. What amount represents U's accrual-basis purchases for the year? Young & Jamison's modified cash-basis financial statements indicate cash paid for operating expenses of $150,000, end-of-year prepaid expenses of $15,000, and accrued liabilities of $25,000. At the beginning of the year, Young & Jamison had prepaid expenses of $10,000, while accrued liabilities were $5,000. If cash paid for operating expenses is converted to accrual-basis operating expenses, what would be the amount of operating expenses?

$455,000 − $64,000 + $50,000 = $441,000

A company records items on the cash basis throughout the year and converts to an accrual basis for year-end reporting. Its cashbasis net income for the year is $70,000. The company has gathered the following comparative Balance Sheet information:

The general rule to convert from cash to accrual is to add decreases in liabilities and increases in assets, and subtract increases in liabilities and decreases in assets. Cash basis net income $70,000 Add: Increase in accounts payable $2,000 Subtract: Increase in unearned revenue $200 Subtract: Increase in wages payable $100 Add: Increase in prepaid rent $300 Subtract: Decrease in accounts receivable $800 Accrual basis net income $71,200

Beginning of year End of year Accounts payable $ 3,000 $ 1,000 Unearned revenue 300 500 Wages payable 300 400 Prepaid rent 1,200 1,500 Accounts receivable 1,400 600 What amount should the company report as its accrual-based net income for the current year? The premium on a three-year insurance policy expiring on December 31, 20X4 was paid in total on January 2, 20X2. If the company has a six-month operating cycle, then on December 31, 20X2, the prepaid insurance reported as a current asset would be for:

Cash-based operating expenses $150,000 Add the beginning of the year prepaid expenses 10,000 Subtract the end of the year prepaid expenses (15,000) Subtract the beginning of the year accrued expenses ( 5,000) Add the end of the year accrued expenses 25,000 Accrual-based operating expenses $165,000

At the end of 20X2, two years of coverage remains. The cost of coverage for 20X3 is a current asset because it will be consumed within a year of the 20X2 Balance Sheet. The definition of a current asset uses the period "operating cycle or one year, whichever is longer." An operating cycle of any length, not exceeding one year, would yield the same answer to this question. The fact that the operating cycle is only six months versus, for example eight months, has no effect on the classification of the prepaid insurance into a current component (to expire within a year of

the 20X2 Balance Sheet) and a long-term component (the portion to expire after 20X3). Twelve Months Bird Corp.'s trademark was licensed to Brian Co. for royalties of 15% of the sales of the trademarked items. Royalties are payable semiannually on March 15 for sales in July through December of the prior year, and on September 15 for sales in January through June of the same year.

20X5 royalty revenue is the amount earned in 20X5, regardless of when it is received. The September receipt of $8,500 accounts for the royalties earned the first half of 20X5. Royalties for the second half are estimated to be .15($30,000) = $4,500. Although this is an estimate, if reliable, it provides relevant information. Waiting for the exact amount is Bird received the following royalties from not justified in this case. The small increase Brian: in reliability does not justify postponing recognition in 20X5. Thus, total royalty March 15 September 15 revenue for 20X5 is $13,000, which equals 20X4 $5,000 $7,500 $8,500 + $4,500. The $14,500 answer is the 20X5 6,000 8,500 sum of the two checks received in 20X5. However, this amount includes $6,000, that is related to sales in the second half of 20X4, Brian estimated that the sales of the and does not include the sales for the second trademarked items would total $30,000 for half of 20X5. July through December 20X5. 13,000 In Bird's 20X5 Income Statement, the royalty revenue should be:...