Interim Reporting Principles

Farr Corp. had the following transactions during the quarter ended March 31, 2005: Loss on early extinguishment of debt $ 70,000 Payment of fire insurance premium for calendar year 2005 100,000 What amount should be included in Farr's income statement for the quarter ended March 31, 2005? Extinguishment loss Insurance expense $70,000 $100,000 $70,000 $25,000 $17,500 $25,000 $0 $100,000

$70,000 $25,000

An inventory loss from a market price decline occurred in the first quarter, and the decline was not expected to reverse during the fiscal year. However, in the third quarter, the inventory's market price recovery exceeded the market decline that occurred in the first quarter. For interim financial reporting, the dollar amount of net inventory should: A. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter. B. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the market price recovery. C. Decrease in the first quarter by the amount of the market price decline and not be affected in the third quarter. D. Not be affected in either the first quarter or the third quarter.

A. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter.

A corporation issues quarterly interim financial statements and uses the lower cost or market method to value its inventory in its annual financial statements. Which of the following statements is correct regarding how the corporation should value its inventory in its interim financial statements? A. Inventory losses generally should be recognized in the interim statements. B. Temporary market declines should be recognized in the interim statements. C. Only the cost method of valuation should be used. D. Gains from valuations in previous interim periods should be fully recognized.

A. Inventory losses generally should be recognized in the interim statements.

On June 30, 2005, Mill Corp. incurred a $100,000 net loss from disposal of a business segment. Also, on June 30, 2005, Mill paid $40,000 for property taxes assessed for the calendar year 2005. What amount of the foregoing items should be included in the determination of Mill's net income or loss for the six-month interim period ended June 30, 2005? A. $140,000 B. $120,000 C. $90,000 D. $70,000

B. $120,000

For interim financial reporting, a company's income tax provision for the second quarter of 2004 should be determined using the: A. Effective tax rate expected to be applicable for the full year of 2004 as estimated at the end of the first quarter of 2004. B. Effective tax rate expected to be applicable for the full year of 2004 as estimated at the end of the second quarter of 2004. C. Effective tax rate expected to be applicable for the second quarter of 2004. D. Statutory tax rate for 2004.

B. Effective tax rate expected to be applicable for the full year of 2004 as estimated at the end of the second quarter of 2004.

Bard Co., a calendar-year corporation, reported income before income tax expense of $10,000 and income tax expense of $1,500 in its interim income statement for the first quarter of the year. Bard had income before income tax expense of $20,000 for the second quarter and an estimated effective annual rate of 25%. What amount should Bard report as income tax expense in its interim income statement for the second quarter? A. $3,500 B. $5,000 C. $6,000 D. $7,500

C. $6,000

On March 15, 2004, Krol Co. paid property taxes of $90,000 on its office building for the calendar year 2004. On April 1, 2004, Krol paid $150,000 for unanticipated repairs to its office equipment. The repairs will benefit operations for the remainder of 2004. What is the total amount of these expenses that Krol should include in its quarterly income statement for the three months ended June 30, 2004? A. $172,500 B. $97,500 C. $72,500 D. $37,500

C. $72,500

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. C. As reporting for an integral part of an annual period. D. As reporting under a comprehensive basis of accounting other than GAAP.

C. As reporting for an integral part of an annual period.

How are discontinued operations that occur at midyear initially reported? A. Disclosed only in the notes to the year-end financial statements. B. Included in net income and disclosed in the notes to the year-end financial statements. C. Included in net income and disclosed in the notes to interim financial statements. D. Disclosed only in the notes to interim financial statements.

C. Included in net income and disclosed in the notes to interim financial statements.

On January 16, Tree Co. paid $60,000 in property taxes on its factory for the current calendar year. On April 2, Tree paid $240,000 for unanticipated major repairs to its factory equipment. The repairs will benefit operations for the remainder of the calendar year. What amount of these expenses should Tree include in its third quarter interim financial statements for the three months ended September 30? A. $0 B. $15,000 C. $75,000 D. $95,000

D. $95,000

An inventory loss from a permanent market decline of $360,000 occurred in May 2006. Cox Co. appropriately recorded this loss in May 2006 after its March 31, 2006, quarterly report was issued. What amount of inventory loss should be reported in Cox's quarterly income statement for the three months ended June 30, 2006? A. $0 B. $90,000 C. $180,000 D. $360,000

D. $360,000

Due to a decline in market price in the second quarter, Petal Co. incurred an inventory loss. The market price is expected to return to previous levels by the end of the year. At the end of the year, the decline had not reversed. When should the loss be reported in Petal's interim income statements? A. Ratably over the second, third, and fourth quarters. B. Ratably over the third and fourth quarters. C. In the second quarter only. D. In the fourth quarter only.

D. In the fourth quarter only.

In general, an enterprise preparing interim financial statements should: A. Defer recognition of seasonal revenue. B. Disregard permanent decreases in the market value of its inventory. C. Allocate revenues and expenses evenly over the quarters, regardless of when they actually occurred. D. Use the same accounting principles followed in preparing its latest annual financial statements.

D. Use the same accounting principles followed in preparing its latest annual financial statements.