SOL. MAN. Chapter 9 Interim Financial Reporting MILLAN 2021 PDF

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Chapter 9Interim Financial ReportingPROBLEM 1: TRUE OR FALSE1. FALSE 6. FALSE2. TRUE 7. FALSE3. FALSE 8. TRUE4. TRUE 9. FALSE5. FALSE 10. TRUEPROBLEM 2: FOR CLASSROOM DISCUSSION1. D2. A3. B4. B5. B6. C7. A8. Solution:Revenue 9,000,Cost of goods sold(5,000,)Gross profit 4,000,Other operating expenses...

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Chapter 9 Interim Financial Reporting

PROBLEM 1: TRUE OR FALSE 1. FALSE 6. FALSE 2.

TRUE

7.

FALSE

3.

FALSE

8.

TRUE

4.

TRUE

9.

FALSE

5.

FALSE

10.

TRUE

PROBLEM 2: FOR CLASSROOM DISCUSSION 1.

D

2.

A

3.

B

4.

B

5.

B

6.

C

7.

A

8.

Solution:

Revenue Cost of goods sold Gross profit Other operating expenses Loss on inventory write-down (2.2M – 2.8M) Interest income (2M x 12% x 3/12) Profit Other comprehensive income: Unrealized loss on FVOCI [450K – (500K + 60K)]

1

9,000,000 (5,000,000 ) 4,000,000 (2,800,000 ) (600,000 ) 60,00 0 660,00 0 (110,000 )

550,00 0

Comprehensive income 9. Solution: Revenue Cost of goods sold Gross profit Other operating expenses Property tax expense (1.2M x 1/4) Depreciation expense [(1.2M / 5) x 3/12] Insurance expense Profit Other comprehensive income: Revaluation increase (4.4M - 3.8M) Comprehensive income

7,000,000 (3,000,000) 4,000,000 (2,800,000) (300,000) (60,000) (15,000) 825,000 600,000 1,425,000

10. Solution: Revenue Cost of goods sold Gross profit Other operating expenses Salaries expense (2.8M x 3/12) Impairment loss Profit from continuing operations Discontinued operations Profit for the year

9,000,000 (3,000,000) 6,000,000 (2,800,000) (700,000) (500,000) 2,000,000 (700,000) 1,300,000

11. Solution: Estimated annual profit before tax Less: Operating loss carryforward Total Multiply by: Estimated annual income tax expense Divide by: Estimated annual profit before tax Weighted average income tax rate Profit before tax - 1st quarter Multiply by: Weighted ave. tax rate

1,200,000 (300,000) 900,000 30% 270,000 1,200,000 22.50% 350,000 22.50%

2

Income tax expense

78,750

PROBLEM 3: EXERCISES 1.

Solution:

Revenue Cost of goods sold Gross profit Other operating expenses Property tax expense Impairment loss Loss

9,000,000 (5,000,000) 4,000,000 (2,800,000) (250,000) (600,000) 350,000

The write-up is not recognized because there are no write-downs in the past.

2.

Solution:

Revenue Cost of goods sold Gross profit Other operating expenses Insurance expense (60K x 3/24) Commission expense Unrealized gain (1.45M - 1.5M) Profit from continuing operations Discontinued operations (2.8M - 3M) + 800K Profit for the year Other comprehensive income: Comprehensive income

3.

9,000,000 (5,000,000) 4,000,000 (2,800,000) (7,500) (80,000) (50,000) 1,062,500 (1,000,000) 62,500 62,500

Solution: 9,000,000 (5,000,000) 4,000,000 (2,800,000)

Revenue Cost of goods sold Gross profit Other operating expenses

3

Employee benefits Depreciation expense (see solution below) Interest income (1.2M x 10% x 3/12)

(450,000)

Profit for the year

735,000

(45,000) 30,000

By trial and error, the depreciation method used by Puppy is determined to be the SYD method. Trial and error: Historical cost (squeeze) Accumulated depreciation Carrying amount - 1/1/x1

1,000,000 (540,000) 460,000

Historical cost Residual value Depreciable amount

1,000,000 (100,000) 900,000

Depreciation - 1st yr. (900K x 5/15) Depreciation - 2nd yr. (900K x 4/15) Accumulated depreciation - 1/1/x1

300,000 240,000 540,000

Depreciation - 20x1 (900K x 3/15) Multiply by: Depreciation - 1st qtr.

180,000 3/12 45,000

4. Solution: Estimated annual profit before tax Less: Operating loss carryforward (300K / 30%) Total Multiply by: Estimated annual income tax expense Divide by: Estimated annual profit before tax Weighted average income tax rate Profit before tax - 1st quarter Multiply by: Weighted ave. tax rate

1,200,000 (1,000,000) 200,000 30% 60,000 1,200,000 5.00% 350,000 5.00%

Income tax expense

17,500

5. Solution: Estimated annual profit before tax Less: Operating loss carryforward Total

800,000 (100,000) 700,000

4

30% 210,000

Multiply by: Estimated annual income tax expense Divide by: Estimated annual profit before tax Weighted average income tax rate

800,000 26.25%

Profit before tax - 1st quarter Multiply by: Weighted ave. tax rate Income tax expense

280,000 26.25% 73,500

PROBLEM 4: MULTIPLE CHOICE – THEORY 6. C 1. D 7. B 2. C 8. C 3. A 9. C 4. D 10. A 5. D

PROBLEM 5: MULTIPLE CHOICE – COMPUTATIONAL 1. B 70,000 loss recognized immediately; (100,000 x ¼) = 25,000 insurance expense allocated to the quarter 2. C Solution: Depreciation expense (60,000 x 6/12)

30,000

Salaries expense - bonus (120,000 x 6/12)

60,000

Total expense for the semi-annual period

90,000

3. B Solution: Property tax (180,000 x 1/4) Costs benefitting the remainder of the year (300,000 x 1/3)

Total expense for the 2nd quarter 4. C

5

45,000 100,000 145,00 0

5. B (-20,000 - 30,000 + 90,000) = 40,000

6. C (200,000 x 25%) = 50,000 7. C – The entire write-down of 900,000 is recognized in the 2nd quarter. 8. D 9. C 10. B Solution: 1,200,000

Estimated annual profit before tax Less: Operating loss carryforward (120K / 30%) Total Multiply by: Estimated annual income tax expense Divide by: Estimated annual profit before tax Weighted average income tax rate

800,000 30% 240,000 1,200,000 20.00%

350,000

2nd Qtr. 200,000

400,000

20.00%

20.00%

20.00%

70,000

40,000

80,000

1st Qtr. Profits before taxes Multiply by: Weighted ave. tax rate Income tax expense

(400,000)

6

3rd Qtr....