ADVANCED ACCOUNTING II - Chap 13

Mugen Resources has actual earnings of $15,000 and $18,000 in the first and second quarters of the year, respectively. The estimated effective annual tax rate has been revised from 25% in the first quarter to 35% in the second quarter. What is the amount of cumulative income tax provision (for the first six months of the year) at the end of second quarter?

$11,550

Identify the characteristics of an operating segment as per ASC 280.

Its business activities may generate revenue and incur expenses. Its operating results are regularly reviewed by the chief operating decision maker. Its financial information is available separately.

Under IFRS, materiality tests for interim reporting are made based on which of the following? Multiple choice question.

Relation to the interim period data

Azmie Solutions has a loss before taxes of $15,000 and $4,000 for the first quarter and second quarter of the year, respectively. The estimated effective annual tax rate for the first quarter is 24%, which is revised to 32% in the second quarter. What is the amount of tax expense or benefit reported in the second quarter when the tax benefit of the operating loss is not assured and no benefit was recorded in the first quarter?

Tax benefit of $0

The international standards for interims recognize that ______ estimates may be used in determining interim amounts as compared to the measurement of annual financial data.

more

The materiality test for discontinued operations and unusual and infrequent transactions should be based on the

operating income of the interim period in which the discontinued operations are first reported.

The deferred tax asset or deferred tax liability created by the temporary differences is

reported on the balance sheet.

As per IAS 8, if a change in accounting policy is made in initial application of a standard, then the

specific transitional provisions presented in that standard will be applied.

Revenue recognized for tax purposes either before or after the period in which it is recognized for book purposes results in a

temporary difference.

In the second quarter of the year 20X1, Diambo Solutions requires an income tax provision of $12,500. The updated estimated effective annual tax rate is 25%. $5,000 of the second-quarter income of $50,000 is due to a temporary difference in which accounting income is higher than tax income. What is the amount credited to deferred tax liability?

$1,250

Gainsboro Systems and its subsidiary have an actual first-quarter loss of $15,000, but expect an annual income of $200,000. The estimated annual tax rate is 28 percent. The consolidated entity has a normal seasonal variation of losses in the first quarter, followed by profits in subsequent quarters. What is the amount of net loss to be shown in first quarter?

$10,800

At the beginning of the second quarter, $30,000 of advertising cost remains in Prepaid Advertising, the benefit of which is expected to be realized throughout the remainder of the year. On June 30, management determines the consolidated sales for the second quarter to be $150,000 and estimates that the total of third-and fourth-quarter sales will be $250,000. The portion of the balance allocated to Advertising expense in the second quarter is ______.

$11,250

The estimated income from Esor Enterprise's continuing operations is $350,000. During the year, the premium on key officers' life insurance is $1,500. What is the amount of estimated annual taxes before tax credits if the combined federal and state income tax rate is 35%?

$123,025

During the second quarter of its fiscal year, Thistle Enterprises experiences a temporary liquidation of 100 units in its LIFO base. The LIFO unit cost is $100 and the estimated replacement cost of the inventory is $120 per unit. The company records temporary LIFO inventory liquidation in the second quarter. To record replacement of LIFO inventory liquidation, what amount is credited to the Accounts Payable account if the inventory is replaced at $130 per unit during the fourth quarter?

$13,000

Sigma Enterprises incurred no advertising expense in the first quarter ending March 31. On April 1, $50,000 was paid for advertising. The quarterly sales were selected as the allocation base for allocating advertising costs to the benefit period. In each of the second and third quarters, $15,000 was allocated as advertising expense. Calculate the amount of advertisement expense allocated in the fourth quarter.

$20,000

During the second quarter of its fiscal year, Azure Pharma experiences a temporary liquidation of 3,000 units in its LIFO base owing to seasonal fluctuations. The LIFO unit cost is $10 and the estimated replacement cost of the inventory is $15 per unit. What is the related cost of goods sold presented in the interim income statement?

$45,000

At the beginning of its fiscal year, Omega Sales had 1,500 units of inventory on hand with a FIFO cost of $200 each, and no additional purchases were made during the year. 200 units were sold during each quarter. The market value of the inventory at the end of the first, second, and third quarter was $190, $180, and $190, respectively. At the end of fourth quarter, the market value of inventory increased to $210. What is the amount of loss recovery in the fourth quarter if none of the inventory declines were identified as temporary?

$7,000

Yaveo Fashions has actual earnings of $12,000 and $20,000 in the first and second quarters of the year, respectively. The estimated effective annual tax rate has been revised from 20% in the first quarter to 30% in the second quarter. What is the amount of income tax provision required in second quarter?

$7,200

Olivedrab Security and its subsidiary have an actual first-quarter loss of $25,000, but expect an annual income of $350,000. The estimated annual tax rate is 30 percent. The consolidated entity has a normal seasonal variation of losses in the first quarter, followed by profits in subsequent quarters. What is the amount of tax benefit to be shown in the first quarter?

$7,500

- Change in accounting principle - Change in an accounting estimate - Disposal of a component of the entity, or extraordinary, unusual, infrequently occurring, or contingent items

- Retrospective application to all prechange interim periods reported - Apply to current and prospective interim periods only - Recognize in interim period in which they occur

If an operating segment's total revenue is 10 percent or more of the combined revenue of all segments, then

- supplementary disclosures must be provided in the annual report. - the segment is separately reportable in the annual report.

If an operating segment's profit or loss is equal to or more than 10 percent of the absolute value of either the combined operating profits or the combined operating losses of the segment, whichever is greater, then

- the segment is separately reportable in the annual report. - supplementary disclosures must be provided in the annual report.

Domous Solutions' estimated annual tax before tax credits is $175,000 and the business tax credit is estimated at $21,000. What is the estimated effective annual tax rate on continuing operations if the estimated annual income from continuing operations is $550,000?

28.00%

Which of the following is considered to be an individual customer for the purpose of applying the enterprisewide disclosure test?

A group of customers under common control A state government The federal government

Identify the income statements to be disclosed on quarterly financial reports.

An income statement for the cumulative year-to-date time period A comparative income statement for the same quarter for the prior fiscal year An income statement for the most recent quarter of the current fiscal period

Which of the following are included in the estimated annual tax rate?

Anticipated tax credits Foreign income taxes State income taxes

Which of the following statements is true about the taxation of interim period operating losses?

Carryback and carryforward provisions do not apply to interim results.

Identify the categories of an accounting change as per ASC 250

Change in an accounting estimate Change in a reporting entity Change in an accounting principle

Which of the following are examples of changes in reporting entity?

Changing the entities that are included in the combined financial statements Changing the specific subsidiaries that comprise the consolidated entity for which consolidated financial statements are presented Presenting consolidated or combined financial statements, rather than individual statements for the separate entities

Identify the true statements about the treatment of permanent differences between the amount of operating income computed for financial statement purposes and the operating income computed for tax purposes.

Permanent differences are included in the determination of financial statement income. Permanent differences are not included in the determination of taxable income.

Identify the true statement about the recognition of the cost of goods sold in the interim period financial statement.

Temporary liquidations of LIFO-based inventories are charged to cost of goods sold using expected replacement cost of the items.

At the beginning of its fiscal year, Lilac Retails has 1,200 units of inventory on hand with a FIFO cost of $25 each. No additional purchases were made during the year. 300 units were sold during the first quarter and 200 units were sold during the second quarter. At the end of the first quarter, the market value of inventory reduced to $20. However, the market value increased to $22 at the end of the second quarter. Which of the following statements are true about the inventory valuation in the interim financial statements if the declines were not identified as temporary?

The ending inventory of the first-quarter is written down by $4,500. The second-quarter interim report shows a loss recovery of $1,400.

Bender Automotive has four segments: Compacts, Sedans, Midsizes, and Trucks. The Compact segment reports a profit of $65,000, the Sedan segment reports a profit of $48,000, the Midsize segment reports a profit of $10,000, and the Truck segment reports a loss of $34,000. Using the 10 percent profit (loss) test, which segments are separately reportable?

Truck Segment Sedan Segment Compact Segment

Direct effects of a change in an accounting principle are those adjustments necessary to make the change in the immediately affected

assets liabilities

For interim income statements, the standard cost systems should

defer the price variances or volume or capacity variances expected to be absorbed by year-end.

ASC 270 standardized the preparation and reporting of interim income statements by

defining the measurement of costs on an interim basis. providing guidance for explaining any adjustments required to make the interim figures total the annual figures. defining the income elements on an interim basis.

If the liquidated inventory is replaced by the end of the fiscal year, the

difference in the actual and estimated replacement price of inventory is adjusted to cost of goods sold in the replacement period.

Inventory likely to be replaced by the end of the fiscal year leads to ______ between the interim treatment of LIFO inventory liquidations and the annual treatment of LIFO liquidations.

differences

In the case of a change in accounting principle, the entity must

disclose the nature and justification for the change. disclose the cumulative effect of the change on retained earnings.

The first step in computing the interim income tax provision is to determine the

effective annual tax rate.

IFRS 8, "Operating Segments," requires disclosure of information about an entity's reportable operating segments

in annual and interim financial statements.

Changes in accounting estimates are reported

in future periods affected by the change. on the current financial statement.

A correction of an error in previously issued financial statements

is not an accounting change. requires restatement of all prior financial statements presented to correct the error(s) in those financials.

As per ASC 280, the separately reportable operating segments are allowed to report the implications of intercompany financing. liabilities which make the disclosure meaningful. the volatility of the exchange rate used for reporting consolidated statements. the future plans for assets of the operating segment.

liabilities which make the disclosure meaningful.

If a segment that was not reported separately in earlier periods becomes reportable in the current period, the prior-years comparative segment's financial results should be consolidated with the overall company results. revenues should be compared to the intercompany revenues to determine 75 percent consolidated revenue test. financial results should be revised to meet the 10 percent significance test. prior year disclosures should be restated to include the segment for comparability.

prior year disclosures should be restated to include the segment for comparability.

ASC 280 has established the enterprisewide disclosure standards to provide the users with information about the company's

products and services. geographic areas. major customers.

Changes in accounting estimates are ______ recognized.

prospectively

No recognition of the reductions in the market value of inventory is required if the reductions are anticipated to be ______.

recovered by year-end temporary

Temporary liquidations of LIFO-based inventories are charged to cost of goods sold in the interim accounting statements using the expected

replacement cost of the items.

A change in reporting entity requires ______ application to reflect the new reporting entity.

retrospective

The Excess of Replacement Cost over LIFO Cost of Inventory Liquidated could be

shown as current liability on the interim balance sheet. netted against inventory reported on the interim balance sheet.

The temporary differences between tax accounting and GAAP accounting require

the recognition of deferred taxes.

The CFO of Diyo Solutions finds that the current usage patterns of the machinery used for production differ from expectations. The CFO decides to change the depreciation method. As a result, he should decide

to report this change by the current and prospective application. not to restate the prior financial statements.

As per ASC 250, a change in an accounting principle made in an interim period is reported

using retrospective application to the prechange interim periods for the direct effects of the change.

If a company wishes to make a change in accounting principle in an interim period, but is not able to determine the effects of the change on the current fiscal year's previous interim periods, the entity must

wait until the beginning of a subsequent fiscal year to make the change in accounting principle.

Which of the following statements are included in quarterly financial reports

A statement of cash flows as of the end of the current cumulative year-to-date period An income statement for the most recent quarter of the current fiscal period A condensed balance sheet at the end of the current quarter

Identify the true statements about the recognition of a tax benefit from an operating loss during the early interim periods.

A tax benefit of an interim operating loss in an enterprise with consistent experience of seasonality and income can be recognized. A tax benefit cannot be recognized if the realization is not assured by the end of the fiscal period.

Duonte Enterprises has a loss of $25,000 before taxes for the first quarter and income of $5,000 before taxes for the second quarter. The estimated effective annual tax rate for the first quarter is 22%, which is revised to 30% in the second quarter. What is the amount of tax or benefit reported in the second quarter when the tax benefit of the operating loss is assured?

Benefit of $500

Select the true statement about the inventory valuation in the interim financial statements. Temporary inventory market price declines that are expected to be reversed by the fiscal year-end should be recognized in the interim period. Inventory losses from decreases in the market value below cost are recognized in the period of the decline. Inventory gains for increases in the market value above cost are recognized in the period of increase. Recoveries of market price up to cost of the inventory in subsequent interim periods should not be recognized in the period of recovery.

Inventory losses from decreases in the market value below cost are recognized in the period of the decline.

During the first quarter, Coral Constructions estimates its annual tax rate at 25%. At the end of the second quarter, the CFO of Coral wants to revise the estimated annual tax rate from 25% to 35%. Which of the following favor the CFO's decision?

Consideration of the changes in the estimated amount of the business tax credit available to Coral for estimating annual tax rate Consideration of the better estimate of projected annual earnings given by the new team of management accountants for estimating annual tax rate Consideration of the additional differences in taxable and accounting income resulting from the revision of tax laws for estimating annual tax rate

In the third quarter of the year 20X1, Skyosis Pharma requires an income tax provision of $18,300. The updated estimated effective annual tax rate is 24%. $6,000 of the third-quarter income of $96,000 is due to a temporary difference in which accounting income is higher than tax income. What is the entry made to recognize the provision and deferral?

Debit Income Tax Expense by $18,300; Credit Deferred Tax Liability by $1,440; Credit Income Taxes Payable by $16,860

The first-quarter earnings of Fractal Financials were $120,000. Which of the following journal entries records the tax provision if the estimated effective tax rate was 20 percent?

Debit Income Tax Expense for $24,000; Credit Income Tax Payable for $24,000

Which of the following are included in the estimated annual tax rate?

Foreign income taxes Capital gains taxes Anticipated tax credits

Identify the true statement about the interim income for the period of temporary liquidation. Multiple choice question. Interim income would be understated if cost of goods sold were charged with the lower LIFO inventory costs in a time of rising prices. Interim income would be overstated if cost of goods sold were charged with the higher LIFO inventory costs in a time of rising prices. Interim income would be overstated if cost of goods sold were charged with the lower LIFO inventory costs in a time of rising prices. Interim income would be overstated if cost of goods sold were charged with the higher LIFO inventory costs in a time of falling prices.

Interim income would be overstated if cost of goods sold were charged with the lower LIFO inventory costs in a time of rising prices.

Which of the following statements are true of interim reporting?

Interim reports cover a time period of less than one year. Selected quarterly financial data must be reported in a footnote in the annual financial report.

Smart Financial Corporation, a U.S.-based parent company, has a segment, Financial Solutions, which provides investment solutions to its clients. Financial Solutions is a separately reportable segment under the 10 percent significance rule. Which of the following statements is true if Smart Financial decides to disclose Financial Solutions' liabilities? Smart Financial should reconcile Financial Solutions' total liabilities and the consolidated total liabilities of the company. Smart Financial should disclose Financial Solutions' liabilities from intercompany transactions in the footnotes of the consolidated statements. Smart Financial should reduce Financial Solutions' total liabilities in the consolidated total liabilities of the company. Smart Financial should revise Financial Solutions' total liabilities and disclose the consolidated total liabilities of the company.

Smart Financial should reconcile Financial Solutions' total liabilities and the consolidated total liabilities of the company.

Coral Electrical has three major manufacturing segments: Wires, Switches, and Sockets. Coral has $800,000 in assets. These assets are divided between the three manufacturing segments as follows: $450,000 attributable to Wires, $300,000 attributable to Switches, and $50,000 attributable to Sockets. Which of the following statements is true about the reportable segments of Coral? The Wires segment is a separately reportable segment as its assets are less than 10% of the total assets. The Sockets segment is not a separately reportable segment as its assets are less than 10% of the total assets. The Switches segment is a separately reportable segment as its assets are less than 50% of the total assets. The Wires segment is not a separately reportable segment as its assets are less than 60% of the total assets.

The Sockets segment is not a separately reportable segment as its assets are less than 10% of the total assets.

Which of the following statements is true about the permanent differences between the amount of operating income computed for financial statement purposes and the operating income computed for tax purposes?

The book income is adjusted for the permanent differences to determine the taxable income for the interim period.

Which of the following statements is true of the reporting requirements for a segment? The companies should not separately report segments if its revenue is more than 75% of the consolidated revenue of the company. The companies should separately report the segment if it has met a 10% test on a one-time basis due to abnormal circumstances. The companies should separately report a segment after considering the interperiod comparability. The companies should not separately report segments reported earlier that fail current period's significance tests due to abnormal events.

The companies should separately report a segment after considering the interperiod comparability.

Which of the following statements is true of the reporting requirements for a segment? The companies should separately report the segment if it has met a 10% test on a one-time basis due to abnormal circumstances. The companies should not separately report segments reported earlier that fail current period's significance tests due to abnormal events. The companies should not separately report segments if its revenue is more than 75% of the consolidated revenue of the company. The companies should separately report a segment after considering the interperiod comparability.

The companies should separately report a segment after considering the interperiod comparability.

Which of the following statements is true of the income tax expense shown on the income statement?

The income tax expense is the sum of the income tax actually payable in the period and the amount of the tax deferral for the period.

At the beginning of the fiscal year 20X1, Cubic Enterprises had 1,000 units of inventory on hand with a FIFO cost of $20 each. No additional purchases were made during the year. During the year, the market value of inventory reduced. The Chief Financial Officer of Cubic decided to recognize the reductions in the market value in the interim period in which they occurred. Identify an argument that favors the CFO's decision.

The reductions in the market price of inventory are permanent.

Which of the following are true of the treatment of interim expenses incurred by a company?

They may be charged to the interim period in which they are incurred. They may be accrued as an estimated liability. They may be allocated to several interim periods.

Identify the correct equation for the calculation of year-to-date tax or benefit.

Year-to-date tax or benefit = Year-to-date income before taxes × Estimated effective annual tax rate

Costs and expenses may be allocated among the interim periods based on an estimate of

activity level of the interim period time used benefit received

Change in accounting principles should be applied to

all prechange interim periods retrospectively.