Test Bank Ch14 Reporting for Segments and for Interim

Package Title: Assessment Questions

Course Title: Advanced Accounting, 6e

Chapter Number: 14

Question Type: Multiple Choice

1) A component of an enterprise that may earn revenues and incur expenses, and about which management evaluates separate financial information in deciding how to allocate resources and assess performance is a(n):

a) identifiable segment.

b) operating segment.

c) reportable segment.

d) industry segment.

Question Title: Assessment (Multiple Choice) Question 01

Difficulty: Easy

Learning Objective: 3 Determine an operating segment.

Section Reference: 14.2

2) An entity is permitted to aggregate operating segments if the segments are similar regarding the:

a) nature of the production processes.

b) types or class of customers.

c) methods used to distribute products or provide services.

d) all of these.

Question Title: Assessment (Multiple Choice) Question 02

Difficulty: Easy

Learning Objective: 3 Determine an operating segment.

Section Reference: 14.2

3) Which of the following is NOT a segment asset of an operating segment?

a) Assets used jointly by more than one segment.

b) Assets directly associated with a segment.

c) Assets maintained for general corporate purposes.

d) Assets used exclusively by a segment.

Question Title: Assessment (Multiple Choice) Question 03

Difficulty: Easy

Learning Objective: 3 Determine an operating segment.

Section Reference: 14.3

4) SFAS No. 131 requires the disclosure of information on an enterprise's operations in different industries for:

a) each annual period presented.

b) each interim period presented.

c) the current period only.

d) each annual period presented and each interim period presented.

Question Title: Assessment (Multiple Choice) Question 04

Difficulty: Easy

Learning Objective: 2 Describe the basic requirements of public companies in reporting segmental data.

Section Reference: 14.2

5) Which of the following is NOT required to be disclosed by SFAS No. 131?

a) Information concerning the enterprise's products.

b) Information related to an enterprise's foreign operations.

c) Information related to an enterprise's major suppliers.

d) All of theses are required disclosures.

Question Title: Assessment (Multiple Choice) Question 05

Difficulty: Medium

Learning Objective: 2 Describe the basic requirements of public companies in reporting segmental data.

Section Reference: 14.2

6) To determine whether a substantial portion of a firm's operations are explained by its segment information, the combined revenue from sales to unaffiliated customers of all reportable segments must constitute at least:

a) 10% of the combined revenue of all operating segments.

b) 75% of the combined revenue of all operating segments.

c) 10% of the combined revenue from sales to unaffiliated customers of all operating segments.

d) 75% of the combined revenue from sales to unaffiliated customers of all operating segments.

Question Title: Assessment (Multiple Choice) Question 06

Difficulty: Medium

Learning Objective: 5 Identify the information to be presented for each reportable segment.

Section Reference: 14.2

7) A segment is considered to be significant if its:

a) reported profit is at least 10% of the combined profit of all operating segments.

b) reported profit (loss) is at least 10% of the combined reported profit of all operating segments not reporting a loss.

c) reported profit (loss) is at least 10% of the combined reported loss of all operating segments that reported a loss.

d) reported profit (loss) is at least 10% of the combined reported profit of all operating segments not reporting a loss; and reported profit (loss) is at least 10% of the combined reported loss of all operating segments that reported a loss.

Question Title: Assessment (Multiple Choice) Question 07

Difficulty: Medium

Learning Objective: 3 Determine an operating segment.

Section Reference: 14.2

8) Which of the following disclosures is NOT required to be presented for a firm's reportable segments?

a) Information about segment assets

b) Information about the bases for measurement

c) Reconciliation of segment amounts and consolidated amounts for revenue, profit or loss, assets, and other significant items.

d) All of these must be presented.

Question Title: Assessment (Multiple Choice) Question 08

Difficulty: Medium

Learning Objective: 5 Identify the information to be presented for each reportable segment.

Section Reference: 14.2

9) Current authoritative pronouncements require the disclosure of segment information when certain criteria are met. Which of the following reflects the type of firm and type of financial statement for which this disclosure is required?

a) Annual financial statements for publicly held companies.

b) Annual financial statements for both publicly held and nonpublicly held companies.

c) Annual and interim financial statements for publicly held companies.

d) Annual and interim financial statements for both publicly held and nonpublicly held companies.

Question Title: Assessment (Multiple Choice) Question 09

Difficulty: Easy

Learning Objective: 2 Describe the basic requirements of public companies in reporting segmental data.

Section Reference: 14.2

10) An enterprise determines that it must report segment data in annual reports for the year ended December 31, 2017. Which of the following would NOT be an acceptable way of reporting segment information?

a) Within the body of the financial statements, with appropriate explanatory disclosures in the footnotes

b) Entirely in the footnotes to the financial statements.

c) As a special report issued separately from the financial statements.

d) In a separate schedule that is included as an integral part of the financial statements.

Question Title: Assessment (Multiple Choice) Question 10

Difficulty: Easy

Learning Objective: 5 Identify the information to be presented for each reportable segment.

Section Reference: 14.2

11) Selected data for a segment of a business enterprise are to be separately reported in accordance with SFAS No. 131 when the revenues of the segment is 10% or more of the combined:

a) net income of all segments reporting profits.

b) external and internal revenue of all reportable segments.

c) external revenue of all reportable segments.

d) revenues of all segments reporting profits.

Question Title: Assessment (Multiple Choice) Question 11

Difficulty: Medium

Learning Objective: 4 Define a reportable segment., 5 Identify the information to be presented for each reportable segment.

Section Reference: 14.2

12) Long Corporation's revenues for the year ended December 31, 2017, were as follows:

Long has a reportable segment if that segment's revenues exceed

a) $80,000.

b) $90,500.

c) $94,000.

d) $14,000.

Question Title: Assessment (Multiple Choice) Question 12

Difficulty: Medium

Learning Objective: 4 Define a reportable segment.

Section Reference: 14.2

13) Determine the amount of revenue for each of the three segments that would be used to identify the reportable industry segments in accordance with the revenues test specified by SFAS 131.

a) Wholesale, $3,600; Retail, $1,500; Finance, $ -0-

b) Wholesale, 4,000; Retail, 1,740; Finance, -0-

c) Wholesale, 4,000; Retail, 1,980; Finance, 980

d) Wholesale, 4,000; Retail, 2,380; Finance, 980

Question Title: Assessment (Multiple Choice) Question 13

Difficulty: Medium

Learning Objective: 4 Define a reportable segment.

Section Reference: 14.2

14) Which of the following is NOT part of the information about foreign operations that is required to be disclosed?

a) Revenues from external customers

b) Operating profit or loss, net income, or some other common measure of profitability

c) Capital expenditures

d) Long-lived assets

Question Title: Assessment (Multiple Choice) Question 14

Difficulty: Medium

Learning Objective: 6 Explain when and what types of geographic data must be reported.

Section Reference: 14.2

15) An entity is permitted to aggregate operating segments that have similar economic characteristics under certain circumstances. Which of the following circumstances would allow aggregation of Entity A into Segment B?

a) Entity A is expected to be included in Segment Z, a new segment, in future periods.

b) Entity A was spun off from Entity C and is now owned directly by the parent entity.

c) Entity A has recently filed bankruptcy and will be liquidated.

d) Segment B consists of retail and wholesale operations and Entity A was primarily a retail establishment but is now engaged primarily in rendering services to the parent entity.

Question Title: Assessment (Multiple Choice) Question 15

Difficulty: Hard

Learning Objective: 5 Identify the information to be presented for each reportable segment.

Section Reference: 14.2

16) Pale Company has four manufacturing divisions, each of which has been determined to be a reportable segment. Common operating costs are appropriately allocated on the basis of each division's sales in relation to Pale’s aggregate sales. Pale’s Delta division accounted for 40% of Pale's total sales in 2017. For the year ended December 31, 2017, Delta had sales of $5,000,000 and traceable costs of $3,600,000. In 2017, Pale incurred operating costs of $350,000 that were not directly traceable to any of the divisions. In addition, Pale incurred interest expense of $360,000 in 2017. In reporting supplementary segment information, how much should be shown as Delta's operating profit for 2017?

a) $1,400,000

b) $1,256,000

c) $1,260,000

d) $1,116,000

Question Title: Assessment (Multiple Choice) Question 16

Difficulty: Hard

Learning Objective: 5 Identify the information to be presented for each reportable segment.

Section Reference: 14.2

17) For external reporting purposes, it is appropriate to use estimated gross profit rates to determine the ending inventory value for:

a) Interim Reporting, No; Annual Reporting, No

b) Interim Reporting, No; Annual Reporting, Yes

c) Interim Reporting, Yes; Annual Reporting, No

d) Interim Reporting, Yes; Annual Reporting, Yes

Question Title: Assessment (Multiple Choice) Question 17

Difficulty: Easy

Learning Objective: 5 Identify the information to be presented for each reportable segment.

Section Reference: 14.4

18) Inventory losses from market declines that are expected to be temporary:

a) should be recognized in the interim period in which the decline occurs.

b) should be recognized in the last (fourth) quarter of the year in which the decline occurs.

c) should not be recognized.

d) none of these.

Question Title: Assessment (Multiple Choice) Question 18

Difficulty: Easy

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

19) Gains and losses that arise in an interim period should be:

a) recognized in the interim period in which they arise.

b) recognized in the last quarter of the year in which they arise.

c) allocated equally among the remaining interim periods.

d) deferred and included only in the annual income statement.

Question Title: Assessment (Multiple Choice) Question 19

Difficulty: Easy

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

20) If a cumulative effect type accounting change is made during the first interim period of a year:

a) no cumulative effect of the change should be included in net income of the period of change.

b) the cumulative effect of the change on retained earnings at the beginning of the year should be included in net income of the first interim period.

c) the cumulative effect of the change should be allocated to the current and remaining interim periods of the year.

d) none of these.

Question Title: Assessment (Multiple Choice) Question 20

Difficulty: Easy

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

21) Which of the following does NOT have to be disclosed in interim reports?

a) Seasonal costs or expenses.

b) Significant changes in estimates.

c) Disposal of a segment of a business.

d) All of these must be disclosed.

Question Title: Assessment (Multiple Choice) Question 21

Difficulty: Easy

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

22) For interim financial reporting, the effective tax rate should reflect:

a) Anticipated Tax Credits, Yes; Extraordinary Items, Yes

b) Anticipated Tax Credits, Yes; Extraordinary Items, No

c) Anticipated Tax Credits, No; Extraordinary Items, Yes

d) Anticipated Tax Credits, No; Extraordinary Items, No

Question Title: Assessment (Multiple Choice) Question 22

Difficulty: Easy

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

23) Companies using the LIFO method may encounter a liquidation of base period inventories at an interim date that is expected to be replaced by the end of the year. In these cases, cost of goods sold should be charged with the:

a) cost of the most recent purchases.

b) average cost of the liquidated LIFO base.

c) expected replacement cost of the liquidated LIFO base.

d) none of these.

Question Title: Assessment (Multiple Choice) Question 23

Difficulty: Medium

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

24) In considering interim financial reporting, how did the Accounting Principles Board conclude that each reporting should be viewed?

a) As a "special" type of reporting that need not follow generally accepted accounting principles.

b) As useful only if activity is evenly spread throughout the year so that estimates are unnecessary.

c) As reporting for a basic accounting period.

d) As reporting for an integral part of an annual period.

Question Title: Assessment (Multiple Choice) Question 24

Difficulty: Easy

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

25) When a company issues interim financial statements, extraordinary items should be:

a) allocated to the current and remaining interim periods of the current year on a pro rata basis.

b) deferred and included only in the annual income statement.

c) included in the determination of net income in the interim period in which they occur.

d) charged or credited directly to retained earnings so that comparisons of interim results of operations will not be distorted.

Question Title: Assessment (Multiple Choice) Question 25

Difficulty: Easy

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

26) If annual major repairs made in the first quarter and paid for in the second quarter clearly benefit the entire year, when should they be expensed?

a) An allocated portion in each of the last three quarters

b) An allocated portion in each quarter of the year

c) In full in the first quarter

d) In full in the second quarter

Question Title: Assessment (Multiple Choice) Question 26

Difficulty: Easy

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

27) During the second quarter of 2017, Clearwater Company sold a piece of equipment at a gain of $90,000. What portion of the gain should Clearwater report in its income statement for the second quarter of 2017?

a) $90,000

b) $45,000

c) $30,000

d) $ -0-

Question Title: Assessment (Multiple Choice) Question 27

Difficulty: Easy

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

28) In January 2017, Cain Company paid $200,000 in property taxes on its plant for the calendar year 2017. Also in January 2017, Cain estimated that its year-end bonuses to executives for 2017 would be $800,000. What is the amount of expenses related to these two items that should be reflected in Cain's quarterly income statement for the three months ended June 30, 2017 (second quarter)?

a) $ -0-

b) $250,000

c) $ 50,000

d) $200,000

Question Title: Assessment (Multiple Choice) Question 28

Difficulty: Easy

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

29) For interim financial reporting, a company's income tax provision for the second quarter of 2017 should be determined using the:

a) statutory tax rate for 2017.

b) effective tax rate expected to be applicable for the full year of 2017 as estimated at the end of the first quarter of 2017.

c) effective tax rate expected to be applicable for the full year of 2017 as estimated at the end of the second quarter of 2017.

d) effective tax rate expected to be applicable for the second quarter of 2017.

Question Title: Assessment (Multiple Choice) Question 29

Difficulty: Easy

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

30) Which of the following reporting practices is permissible for interim financial reporting?

a) Use of the gross profit method for interim inventory pricing.

b) Use of the direct costing method for determining manufacturing inventories.

c) Deferral of unplanned variances under a standard cost system until year-end.

d) Deferral of inventory market declines until year-end.

Question Title: Assessment (Multiple Choice) Question 30

Difficulty: Easy

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

31) Which of the following statements most accurately describes interim period tax expense?

a) The best estimate of the annual tax rate times the ordinary income (loss) for the quarter.

b) The best estimate of the annual tax rate times income (loss) for the year to date less tax expense (benefit) recognized in previous interim periods.

c) Average tax rate for each quarter, including the current quarter, times the current income (loss).

d) The previous year's actual effective tax rate times the current quarter's income.

Question Title: Assessment (Multiple Choice) Question 31

Difficulty: Medium

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

32) The computation of a company's third quarter provision for income taxes should be based upon earnings:

a) for the quarter at an expected annual effective income tax rate.

b) for the quarter at the statutory rate.

c) to date at an expected annual effective income tax rate less prior quarters' provisions.

d) to date at the statutory rate less prior quarters' provisions.

Question Title: Assessment (Multiple Choice) Question 32

Difficulty: Medium

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

33) Bjork, a calendar year company, has the following income before income tax provision and estimated effective annual income tax rates for the first three quarters of 2017:

Bjork's income tax provision in its interim income statement for the third quarter should be

a) $74,000.

b) $60,000.

c) $50,000.

d) $144,000.

Question Title: Assessment (Multiple Choice) Question 33

Difficulty: Hard

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

34) An inventory loss from a market price decline occurred in the first quarter. The loss was not expected to be restored in the fiscal year. However, in the third quarter the inventory had a market price recovery that exceeded the market decline that occurred in the first quarter. For interim 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 market price recovery.

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 decrease in the first quarter.

c) not be affected in the first quarter and increase in the third quarter by the amount of the market price recovery that exceeded the amount of the market price decline.

d) not be affected in either the first quarter or the third quarter.

Question Title: Assessment (Multiple Choice) Question 34

Difficulty: Medium

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

35) Advertising costs may be accrued or deferred to provide an appropriate expense in each period for:

a) Interim Reporting, Yes; Annual Reporting, No

b) Interim Reporting, Yes; Annual Reporting, Yes

c) Interim Reporting, No; Annual Reporting, No

d) Interim Reporting, No; Annual Reporting, Yes

Question Title: Assessment (Multiple Choice) Question 35

Difficulty: Medium

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

Question Type: Essay

36) In SFAS No. 131, the FASB requires all public companies to report a variety of information for reportable segments. Define a reportable segment and identify the information to be reported for each reportable segment.

The information reported includes information about (a) segment operating profit/loss; (b) segment assets, and (c) bases for measurement. In addition, a reconciliation of segment amounts to the consolidated amounts for revenue, profit/loss, assets and other significant items is presented. Enterprisewide disclosures regarding products or services, geographic areas, and major customers are also made.

Question Title: Assessment (Essay) Question 36

Difficulty: Medium

Learning Objective: 4 Define a reportable segment.

Section Reference: 14.2

37) Publicly owned companies are usually required to file some type of quarterly (interim) report as part of the agreement with the stock exchanges that list their stock. Indicate two problems with interim reporting and GAAP’s position on this reporting.

GAAP (APB Opinion No. 28) supports the integral view for interim reporting. The APB stated that each interim period should be viewed primarily as an integral part of an annual period.

Question Title: Assessment (Essay) Question 37

Difficulty: Medium

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

38) The following information is available for Pink Company for 2017:

a. In early April Pink made major repairs to its equipment at a cost of $90,000. These repairs will benefit the remainder of 2017 operations.

b. At the end of May, Pink sold machinery with a book value of $35,000 for $45,000.

c. An inventory loss of $60,000 from market decline occurred in July. In the fourth quarter the inventory had a market value recovery that exceeded the market decline by $30,000.

Required:

Compute the amount of expense/loss that would appear in Pink Company's June 30, September 30, and December 31, 2017, quarterly financial statements.

June 30 Sept. 30 Dec. 31

Major repairs $30,000 $30,000 $30,000

Gain on Sale (10,000)

Inventory loss/(gain) ________ 60,000 (60,000)

$20,000 $90,000 $(30,000)

Question Title: Assessment (Problem) Question 14-1

Difficulty: Medium

Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.

Section Reference: 14.4

39) Stein Corporation's operations involve three industry segments, X, Y, and Z. During 2017, the operating profit (loss) of each segment was:

Operating

Segment Profit (Loss)

X $ 600

Y 8,100

Z (6,300)

Required:

Determine which of the segments are reportable segments.

Both segments Y and Z are reportable segments because the amount of their operating profit (loss) is more than 10% of $8,700 ($600 + 8,100) - the combined operating profit of segments that did not incur a loss. Any segment with an operating profit (loss) of $870 or more is a reportable segment.

Question Title: Assessment (Problem) Question 14-2

Difficulty: Medium

Learning Objective: 4 Define a reportable segment.

Section Reference: 14.2

40) Walleye Industries operates in four different industries. Information concerning the operations of these industries for the year 2017 is:

Revenue

Industry Operating Segment

Segment Total Intersegment Profit (Loss) Assets

A $ 24,000 $4,200 $ 2,700 $ 22,400

B 18,000 2,200 (2,000) 25,200

C 90,000 14,000 3,600 70,000

D 168,000 -0- 23,700 162,400

$300,000 $28,000 $280,000

Required:

Complete the following schedule to determine which of the above segments must be treated as reportable segments.

10% Test For

Segment Revenue Op. Profit (Loss) Segment Assets Reportable?

A

B

C

D

10% Test For

Segment Revenue Op. Profit (Loss) Segment Assets Reportable?

A 8% (1) 9% (5) 8% (9) No

B 6% (2) 7% (6) 9% (10) No

C 30% (3) 12% (7) 25% (11) Yes

D 56% (4) 79% (8) 58% (12) Yes

(1) 24,000/300,000 (7) 3,600/30,000

(2) 18,000/300,000 (8) 23,700/30,000

(3) 90,000/300,000 (9) 22,400/280,000

(4) 168,000/300,000 (10) 25,200/280,000

(5) 2,700/30,000 (11) 70,000/280,000

(6) (2,000)/30,000 (12) 162,400/280,000

Question Title: Assessment (Problem) Question 14-3

Difficulty: Hard

Learning Objective: 4 Define a reportable segment.

Section Reference: 14.2

41) Morgan Company prepares quarterly financial statements. The following information is available concerning calendar year 2017:

Estimated full-year earnings $3,000,000

Full-year permanent differences:

Penalty for pollution 150,000

Estimated dividend income exclusion 60,000

Actual pretax earnings, 1/1/17 to 3/31/17 480,000

Nominal income tax rate 40%

Required:

Compute the income tax provision for the first quarter of 2017.

Estimated pretax full-year income $3,000,000

Add: Pollution penalty 150,000

Less: Estimated dividend income inclusion (60,000)

Estimated full-year taxable income $3,090,000

Estimated income tax payable ($3,090,000 × 0.40) $1,236,000

Estimated effective tax rate ($1,236,000/$3,000,000) 41.2%

First quarter tax provision ($480,000 × 0.412) $197.760

Question Title: Assessment (Problem) Question 14-4

Difficulty: Hard

Learning Objective: 9 Describe current requirements for companies to report interim information.

Section Reference: 14.4

42) XYZ Corporation has eight industry segments with sales, operating profit and loss, and identifiable assets at and for the year ended December 31, 2017, as follows:

Required:

A. Identify the segments, which are reportable segments under one or more of the 10 percent revenue, operating profit, or assets tests.

B. After reportable segments are determined under the 10 percent tests, they must be reevaluated under a 75 percent revenue test before a final determination of reportable segments can be made. Under this 75 percent test, identify if any other segments may have to be reported.

A. Revenue Test – 10% ($6,800,000 + $1,200,000) = $700,000 800,000

Steel, Auto Parts, Coal Mine, Paint

Operating Profit – 10% ($1,575,000) = $157,500

Steel, Auto Parts, Coal Mine, Paint, Electronics

Segment Assets – 10% ($8,400,000) = $840,000

Steel, Auto Parts, Coal Mine, Paint

Reportable segments applying the 10% tests are: Steel, Auto Parts, Coal Mine, Paint and Electronics.

B. 75% Revenue Test – 75% ($6,800,000) = $5,100,000

Since the 75% revenue test only applies to “Sales to Unaffiliated Customers” only, the five reportable segments from Part A only include $4,870,000 ($1,350,000 + $1,200,000 + $600,000 + $1,120,000 + $600,000) worth of sales. Because the 75% test is not met, one of the segments that did not qualify as a reportable segment under the previous tests must be included as a reportable segment.

Question Title: Assessment (Problem) Question 14-5

Difficulty: Hard

Learning Objective: 4 Define a reportable segment.

Section Reference: 14.2

43) Blink Company, which uses the FIFO inventory method, had 508,000 units in inventory at the beginning of the year at a FIFO cost per unit of $20. No purchases were made during the year. Quarterly sales information and end-of-quarter replacement cost figures follow:

End-of- Quarter

Quarter Unit Sales Replacement Cost

1 200,000 $17

2 60,000 18

3 85,000 13

4 61,000 18

The market decline in the first quarter was expected to be nontemporary. Declines in other quarters were expected to be permanent.

Required:

Determine cost of goods sold for the four quarters and verify the amounts by computing cost of goods sold using the lower-of-cost-or-market method applied on an annual basis.

Cost of Goods Sold

Computation Quarter Cumulative

1. Sold 200,000 units @ $20 $4,000,000

Write down of ending inventory of 308,000

units to market (308,000 × [$20 – 17]) 924,000 4,924,000 4,924,000

2. Sold 60,000 units @ $17 1,020,000

Less write down recovery on ending

inventory of 248,000 (248,000 × [$18 - $17]) 248,000 772,000 5,696,000

3. Sold 85,000 units @ $18 1,530,000

Write down of ending inventory of 163,000

units to market (163,000 × [$18 - $13]) 815,000 2,345,000 8,041,000

4. Sold 61,000 units @ $13 793,000

Less write down recovery on ending inventory

of 102,000 (102,000 × [$18 - $13]) 510,000 283,000 8,324,000

Verification

Units Sold During Year FIFO Cost per Unit Amount

406,000 × $20 $8,120,000

Add: Write down of ending inventory to the lower of cost or market

(102,000 × [$20 - $18]) 204,000

Total cost of goods sold for the year $8,324,000

Question Title: Assessment (Problem) Question 14-6

Difficulty: Hard

Learning Objective: 9 Describe current requirements for companies to report interim information.

Section Reference: 14.4

44) Itchy Company’s actual earnings for the first two quarters of 2017 and its estimate during each quarter of its annual earnings are:

Actual first-quarter earnings $ 800,000

Actual second-quarter earnings 1,020,000

First-quarter estimate of annual earnings 2,700,000

Second-quarter estimate of annual earnings 2,830,000

Itchy Company estimated its permanent differences between accounting income and taxable income for 2017 as:

Environmental violation penalties $ 45,000

Dividend income exclusion 320,000

These estimates did not change during the second quarter. The combined state and federal tax rate for Itchy Company for 2017 is 40%.

Required:

Prepare journal entries to record Itchy Company’s provisions for income taxes for each of the first two quarters of 2017.

First Quarter

Estimated Annual Earnings $2,700,000

Add: Environmental Violation Penalties 45,000

2,745,000

Deduct: Dividend Income Exclusion <320,000>

Estimated Taxable Income $2,425,000

Estimated Annual Income Tax Payable ($2,425,000 × 0.40) 970,000

Estimated Effective Combined Annual Tax Rate ($970,000 / $2,700,000) 35.9%

Income Tax Expense 287,200

Income Tax Payable ($800,000 × 0.359) 287,200

Second Quarter

Estimated Annual Earnings $2,830,000

Less: Net Permanent Differences ($320,000 - $45,000) <275,000>

Estimated Taxable Income $2,555,000

Estimated Annual Income Tax Payable (2,555,000 × 0.40) 1,022,000

Estimated Effective Combined Annual Tax Rate ($1,022,000/$2,830,000) 36.1%

Cumulative Income to Date ($800,000 + $1,020,000) $1,820,000

Estimated Income Tax Rate: 0.361

Cumulative Tax Provision Needed 657,020

Tax Provision in 1^st Quarter <287,200>

Tax Provision in 2^nd Quarter $ 369,820

Income Tax Expense 369,820

Income Tax Payable 369,820

Question Title: Assessment (Problem) Question 14-7

Difficulty: Hard

Learning Objective: 9 Describe current requirements for companies to report interim information.

Section Reference: 14.4