江西財經(jīng)大學高級財務(wù)會計國際學院題庫

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AdvancedAccounting,11e(Beams/Anthony/Bettinghaus/Smith)

Chapter15SegmentandInterimFinancialReporting

MultipleChoiceQuestions

Similaroperatingsegmentsmaybecombinedifthesegmentshavesimilareconomiccharacteristics.WhichoneofthefollowingisasimilareconomiccharacteristicunderGAAP?

A)Thesegments'managementteams

Thetaxreportinglawsections

Thedistributionmethodforproductsorservices

Theexpectedratesofreturnandriskforthesegments'productiveassets

Answer:C

Objective:LO2

Difficulty:Easy

Whichofthefollowingconditionswouldnotindicatethattwobusinesssegmentsshouldbeclassifiedasasingleoperatingsegment?

Theyhavesimilaramountsofintersegmentrevenuesorexpenses.

Theyhaveasimilardistributionmethodforproducts.

Theyhavesimilarproductionprocesses.

Theyhavesimilarproductsorservices.

Answer:A

Objective:LO2

Difficulty:Easy

GAAPrequiresthatsegmentinformationbereportedA)bygeographics,withoutregardtosizeofthesegment.B)bygeographics,withoutregardtoindustryorproduct-line.

howevermanagementorganizestheenterpriseintounitsforinternaldecision-makingandperformance-evaluationpurposes.

byindustryorproduct-line,withoutregardtogeographics.

Answer:C

Objective:LO1

Difficulty:Easy

GAAPrequiresdisclosuresforeachreportableoperatingsegmentforeachofthefollowing,exceptforA)Revenues.

B)Depreciationexpense.C)R&Dexpenditures.D)Extraordinaryitems.Answer:C

Objective:LO4

Difficulty:Easy

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Whatisthethresholdforreportingamajorcustomer?A)5percentofrevenues

B)5percentofprofits

C)10percentofrevenuesD)10percentofprofits

Answer:

C

Objective:

LO6

Difficulty:

Easy

6)ColeCompanyhasthefollowing2011financialdata:

Consolidatedrevenueperincomestatement

$800,000

Intersegmentsales

200,000

Intersegmenttransfers

100,000

Combinedrevenuesofallsegments

$1,100,000

ColeCompanyshouldaddsegmentsif

thesumofitssegments'externalrevenuedoesnotexceed$600,000.

thesumofitssegments'externalrevenuedoesnotexceed$825,000.

thesumofitssegments'revenueincludingintersegmentrevenuedoesnotexceed$600,000.

thesumofitssegments'revenueincludingintersegmentrevenuedoesnotexceed$825,000.

Answer:A

Explanation:A)(75%of$800,000=$600,000)

Objective:LO3

Difficulty:Moderate

Whichofthefollowingisnotaquantitativethresholdfordeterminingareportablesegment?A)Segmentassetsare10%ormoreofthecombinedassetsofalloperatingsegments.

B)Theabsolutevalueofasegment'sprofitorlossis10%ormoreofthegreaterof(1)thecombinedreportedprofitofalloperatingsegmentsthatreportedaprofitor(2)theabsolutevalueofthecombinedreported

lossofalloperatingsegmentsthatreportedaloss.

Segmentreportedrevenue,includingintersegmentrevenues,is10%ormoreofthecombinedrevenue(bothinternalandexternal)ofalloperatingsegments.

Segmentresidualprofitafterthecostofequityis10%ormoreofthecombinedresidualprofitofalloperatingsegments.

Answer:D

Objective:LO2

Difficulty:Easy

Foranoperatingsegmenttobeconsideredareportingsegmentundertherevenuethreshold,itsreportedrevenuemustbe10%ormoreof

A)thecombinedenterpriserevenues,eliminatingallrelevantintracompanytransfersandbalances.B)thecombinedrevenues,excludingintersegmentrevenues,ofalloperatingsegments.

C)thecombinedrevenues,includingintersegmentrevenues,ofalloperatingsegments.D)theconsolidatedrevenueofalloperatingsegments.

Answer:C

Objective:LO2

Difficulty:Easy

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Anenterprisehaseightreportingsegments.Fivesegmentsshowanoperatingprofitandthreesegmentsshowanoperatingloss.Indeterminingwhichsegmentsareclassifiedasreportingsegmentsundertheoperatingprofitstest,whichofthefollowingstatementsiscorrect?

A)Thetestvalueforallsegmentsis10%ofconsolidatednetprofit.

B)Thetestvalueforprofitablesegmentsis10%ormoreofthosesegmentsreportingaprofit,andthetest

valueforlosssegmentsis10%ormoreofthosesegmentsreportingaloss.

Thetestvalueforlosssegmentsis10%ofthegreaterof(a)theabsolutevalueofthesumofthosesegmentsreportinglosses,or(b)10%ofconsolidatednetprofit.

Thetestvalueforallsegmentsis10%ofthegreaterof(a)theabsolutevalueofthesumofthose

segmentsreportingprofits,or(b)theabsolutevalueofthesumofthosesegmentsreportinglosses.

Answer:D

Objective:LO2

Difficulty:Moderate

DottCorporationexperienceda$100,000extraordinarylossinthesecondquarterof2011intheirEastCoastoperatingsegment.Thelossshouldberecognized

onlyattheconsolidatedreportlevelattheendoftheyear.

entirelyinthesecondquarterof2011intheEastCoastoperatingsegment.

inequalamountsallocatedtotheremainingthreequartersof2011atthecorporatelevel.

inequalamountsallocatedtotheremainingthreequartersof2011oftheEastCoastsegment.

Answer:B

Objective:LO7

Difficulty:Moderate

11)WhichoneofthefollowingoperatingsegmentdisclosuresisnotrequiredbyGAAP?

TotalAssets

Equity

Intersegmentsales

Extraordinaryitems

Answer:B

Objective:LO4

Difficulty:Easy

12)WhichoneofthefollowingoperatingsegmentinformationitemsisnotdirectlynamedbyGAAPtobe

reconciledtoconsolidatedtotals?

A)Assets

B)Liabilities

C)Revenues

D)Profitorloss

Answer:B

Objective:LO5

Difficulty:Easy

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13)Whatisthepurposeofinterimreporting?

Provideshareholderswithmoretimelyinformation

Provideshareholderswithmoreaccurateinformation

Provideshareholderswithmoreextensivedetailaboutspecificaccountsandtransactions

Provideshareholderswithmorecurrentauditedinformation

Answer:A

Objective:LO7

Difficulty:Easy

ThefollowingtableisprovidedinthedisclosuresforinterimreportingbyBiggCompany,regardingthelocationoftheirassets.

UnitedStates

$1,860,000

Mexico

1,270,000

Canada

880,000

Brazil

440,000

Other

50,000

Basedonthetable,whichofthefollowingstatementsistrue?

OnlytheU.S.andMexicodivisionswouldbereportablegeographicdivisions.

TheU.S.,MexicoandCanadadivisionswouldbereportablegeographicdivisions.

Allgeographicdivisionswouldbereportable,exceptfor"other."

Allgeographicdivisionswouldbereportable.

Answer:B

Explanation:B)Totalassetsforalldivisions=$4,500,000,thereforethosedivisionswithatleast$4,500,000

×10%or$450,000wouldbeconsideredreportablegeographicdivisions.

Objective:LO2

Difficulty:Moderate

JacanaCompanyusestheLIFOinventorymethod.Duringthesecondquarter,Jacanaexperienceda

100-unitliquidationinitsLIFOinventoryataLIFOcostof$430perunit.Jacanaconsideredtheliquidationtemporaryandexpectstoreplacetheunitsinthethirdquarteratanestimatedreplacementcostof$460aunit.Thecostofgoodssoldcomputationintheinterimreportforthesecondquarterwill

includethe100liquidatedunitsatthe$460estimatedreplacementunitcost.

includethe100liquidatedunitsatthe$430LIFOunitcost.

beunderstatedby$3,000.

beoverstatedby$3,000.

Answer:A

Objective:LO7

Difficulty:Moderate

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16)HowdoesGAAPviewinterimaccountingperiods?

Asdiscreteunitsforwhichnetincomemaybeseparatelydetermined

Asintegralunitsoftheentireyearforwhicheachinterimperiodisanessentialpartofanannualperiod

Asintegralunitsoftheentireyearwitheachinterimperiodasanindependentaccountingperiod

Asdiscreteunitsoftheentireyearusingthesameprinciplesthatareappliedtotheannualperiod

Answer:B

Objective:LO7

Difficulty:Easy

Ingeneral,GAAPencouragestheidentificationofreportablesegmentsbasedonthefollowing:A)Reportedsegmentsmustaccountforatleast75%ofallexternalandinter-segmentsales.

B)Reportedsegmentsmustideallyaccountforatleast75%ofallsales,unlesstherearemanysmaller

divisionsandseparatereportingwouldcreatelessclarityinreporting.

Iftherearemorethan10reportablesegments,thecompanyshouldconsideradditionalaggregationoftheirsegments.

Reportedsegmentsmustaccountfor100%oftheexternalsales,butonly75%ofexternaland

inter-segmentsales.

Answer:C

Objective:LO3

Difficulty:Easy

SandpiperCorporationpaid$120,000forannualpropertytaxesonJanuary15,2011,and$20,000forbuildingrepaircostsonMarch10,2011.Totalrepairexpensesfortheyearwereestimatedtobe$200,000,andarenormallyaccruedduringtheyearuntilincurred.WhattotalamountofexpensefortheseitemswasreportedinSandpiper'sfirstquarter2011interimincomestatement?

$50,000

$80,000

$100,000

$140,000

Answer:B

Objective:LO8

Difficulty:Moderate

TheestimatedtaxableincomeforShebillCorporationonJanuary1,2011,was$80,000,$100,000,$100,000,and$120,000,respectively,foreachofthefourquartersof2011.Shebill'sestimatedannual

effectivetaxratewas30%.Duringthesecondquarterof2011,theestimatedannualeffectivetaxratewasincreasedto34%.Givenonlythisinformation,Shebill'ssecondquarterincometaxexpensewas

$30,000.

$34,000.

$37,200.

$61,200.

Answer:C

Objective:LO8

Difficulty:Moderate

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OnJanuary5,2011,EagleCorporationpaid$50,000inrealestatetaxesforthecalendaryear.InMarchof2011,Eaglepaid$180,000foranannualmachineryoverhauland$10,000fortheannualCPAauditfee.WhatamountwasexpensedfortheseitemsonEagle'squarterlyinterimfinancialstatements?

A)

Quarter1

Quarter2

Quarter3

Quarter4

$202,500

$12,500

$12,500

$12,500

B)

Quarter1

Quarter2

Quarter3

Quarter4

$195,000

$15,000

$15,000

$15,000

C)

Quarter1

Quarter2

Quarter3

Quarter4

$67,500

$57,500

$57,500

$57,500

D)

Quarter1

Quarter2

Quarter3

Quarter4

$60,000

$60,000

$60,000

$60,000

Answer:

D

Objective:

LO8

Difficulty:

Moderate

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Exercises

TheaccountantforBaxterCorporationhasassignedmostofthecompany'sassetstoitsthreesegmentsasfollows:

Electronics

$1,760,000

Hardware

3,420,000

Plumbing

490,000

Total

$5,670,000

Theunassignedassetsconsistof$430,000ofunallocatedgoodwilland$270,000ofassetsattachedtothecorporateheadquarters.Forinternaldecision-makingpurposes,goodwillisnotassignedtothesegmentsandtheassetsassignedtothecorporateheadquartersareallocatedequallytotheoperatingsegments.

Required:

Whatistheproperthresholdvaluetouseindeterminingwhichoftheoperatingsegmentsshownabovearereportingsegments?

Whichoftheoperatingsegmentsareconsideredreportingsegments?

Answer:

Requirement1

GAAPallowstheassetsofthecorporateheadquarterstobeincludedinthesegmentsiftheassetsareincludedinthemeasureofthesegment'sassetsthatarereviewedbythechiefoperatingdecisionmaker.Thisinterpretationwouldjustifytheexclusionofgoodwillandinclusionofthecorporateheadquartersassets.Thethresholdvaluewouldbe10%timesthesumof($5,670,000+$270,000)or$594,000.

Requirement2

UsingthecriterionestablishedinRequirement1,ElectronicsandHardwarewouldbothbeconsideredreportingsegments.Plumbingwouldnotbeareportingsegmentbecauseitfallsbelowthe$594,000thresholdvalue.($490,000+$270,000/3=$580,000).

Objective:LO2

Difficulty:Moderate

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Forinternaldecision-makingpurposes,DashwoodCorporation'soperatingsegmentshavebeenidentifiedasfollows:

Revenues

Operating

(includes

Profit

Identifiable

OperatingSegment

intersegment

orLoss

Assets

revenues)

Appliances

$1,100,000

$(150,000)

$1,200,000

Clothing

1,300,000

(750,000)

400,000

LawnandGarden

850,000

150,000

150,000

AutoAccessories

1,000,000

100,000

200,000

ServiceContracts

650,000

(50,000)

100,000

CatalogSales

2,300,000

50,000

500,000

HomeFurnishings

2,800,000

250,000

1,000,000

Tools

2,400,000

300,000

250,000

$12,400,000

$(100,000)

$3,800,000

Revenuesofthesegmentsareexternal,withtheexceptionoftools,whichsold$400,000toothersegments,andAppliances,whichsold$200,000toothersegments.

Required:

Inapplyingthe"revenue"testtoidentifyreportingsegments,whatisthetestvalueforDashwoodCorporation?

Usingthe"revenue"test,whichofDashwood'soperatingsegmentswillalsobereportablesegments?Answer:

Requirement1

Intherevenuetest,thereisnoseparationofrevenueearnedfromsalestoothersegments,thusthetest

valuetobeusedis10%ofthetotalrevenueslisted,or$12,400,000×10%=$1,240,000.

Requirement2

ReportablesegmentsareClothing,CatalogSales,HomeFurnishingsandTools.Therevenuefromthesefoursegmentsdoesnotexceed75%ofconsolidatedrevenueof$11,800,000,whichequals$8,850,000.Asaresult,anotheroperatingsegment,Appliances,mustbereportable.

Objective:LO2

Difficulty:Moderate

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Forinternaldecision-makingpurposes,CalamCorporation'soperatingsegmentshavebeenidentifiedasfollows:

Operating

Profit

Identifiable

OperatingSegment

Revenues

orLoss

Assets

Appliances

$110,000

$(15,000)

$120,000

Clothing

130,000

(75,000)

40,000

LawnandGarden

85,000

15,000

15,000

AutoAccessories

100,000

10,000

20,000

ServiceContracts

65,000

(5,000)

10,000

CatalogSales

230,000

5,000

50,000

HomeFurnishings

280,000

25,000

100,000

Tools

240,000

30,000

25,000

$1,240,000

(10,000)

$380,000

Required:

Inapplyingthe"operatingprofitorloss"testtoidentifyreportingsegments,whatisthetestvalueforCalamCorporation?

Usingthe"reportedprofitorloss"test,whichofCalam'soperatingsegmentswillalsobereportingsegments?

Answer:Requirement1

Iftheabsolutevalueofthetotalsegmentsshowingoperatinglosses,$95,000,ismorethantheabsolutevalueoftheprofitablesegments,$85,000,thentheabsolutevalueofthelosssegments,whenmultipliedby10%,wouldbecomethetestvalueforeachsegment.The$95,000ismultipliedby10%toget$9,500,whichisthetestvalueforboththeprofitableandlosssegments.

Requirement2

Usingthetestvalueof$9,500forprofitandlossofthesegments,onlytheServiceContractsandCatalogSalessegmentswouldnotbeconsideredreportablesegments.

Objective:LO2

Difficulty:Moderate

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Forinternaldecision-makingpurposes,ElomCorporation'soperatingsegmentshavebeenidentifiedasfollows:

Operating

Profit

Identifiable

OperatingSegment

Revenues

orLoss

Assets

Appliances

$110,000

$(15,000)

$120,000

LawnandGarden

85,000

15,000

15,000

AutoAccessories

100,000

10,000

20,000

ServiceContracts

65,000

(5,000)

10,000

CatalogSales

230,000

5,000

50,000

Corporate

________

________

25,000

$590,000

$10,000

$240,000

Corporateassetsaretypicallyallocatedbackevenlytothesegmentsforinternalanalysispurposes.

Required:

Inapplyingthe"asset"testtoidentifyreportingsegments,whatisthetestvalueforElomCorporation?

Usingthe"asset"test,whichofElom'soperatingsegmentswillalsobereportingsegments?

Answer:

Requirement1

Totalidentifiableassetsof$240,000ismultipliedby10%todeterminethetestvalueof$24,000.

Requirement2

BasedontheanswertoRequirement1,Appliances,AutoAccessoriesandCatalogSaleswouldbereportingsegmentsbecausetheiridentifiablesegmentassets(whichwouldincludeanadditional$5,000,or1/5of$25,000corporateassets),meetsorexceedsthetestvalueof$24,000.NotethatCorporateisnotareportablesegment,butthattheassetsareallocatedtotheotherdivisions.

Objective:LO2

Difficulty:Moderate

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5)ThefollowingdatarelatetoFalconCorporation'sindustrysegments:

Salesto

External

Intersegment

IndustrySegment

Customers

Sales

Assets

OilExploration

$80,000

$$310,000

Refinery

240,000

720,000

Plastics

20,000

$20,000

120,000

Chemicals

220,000

160,000

980,000

SolarPower

20,000

75,000

270,000

Totals

$580,000

$255,000

$$2,400,000

Required:

WhichofFalcon'soperatingsegmentswouldbeconsideredreportingsegmentsunderthe"revenue"test?

WhichofFalcon'soperatingsegmentswouldbeconsideredreportingsegmentsunderthe"asset"test?Answer:

Requirement1

Thetestvalueis10%ofthecombinedrevenuesofalloperatingsegmentsincludingintersegmentrevenues,or,10%×$835,000or$83,500.Basedonthistestvalue,Refinery,Chemicals,andSolarPowerwouldbethereportingsegmentsbecauseeachofthesesegmentshasmorethan$83,500intotalsales.

Requirement2

Thetestvalueis10%ofthecombinedidentifiableassetsor10%×$2,400,000or$240,000.Basedonthistestvalue,OilExploration,Refinery,Chemicals,andSolarPowerwouldbethereportingsegmentsbecauseeach

ofthesesegmentshasmorethan$240,000insegmentassets.

Objective:LO2

Difficulty:Moderate

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Forinternaldecision-makingpurposes,FalconCorporationidentifiesitsindustrysegmentsbygeographicalarea.For2011,thetotalrevenuesofeachsegmentareprovidedbelow.Therearenointersegmentrevenues.

Total

Revenues

Canada

$22,000,000

UnitedStates

76,000,000

Mexico

10,000,000

SouthAmerica

9,000,000

China

2,000,000

Russia

1,500,000

Australia

3,000,000

EuropeanUnion

12,000,000

OtherEuropean

14,000,000

Totalrevenues

$149,500,000

Required:

Whichoperatingsegmentswillbeconsideredreportingsegmentsbasedontherevenuetest?

Whatisthetestvaluefordeterminingwhetherasufficientnumberofsegmentsarereported?

Whatwillbetheminimumnumberofsegmentsthatmustbereported?

Answer:

Requirement1

Thereportingsegmentswillbethosesegmentswhosesegmentrevenueis10%ormoreofthecombinedrevenuesofalloperatingsegments.Thetotalcombinedrevenueoftheoperatingsegmentsis$149,500,000and10%ofthatnumberis$14,950,000.OnlyCanadaandtheUnitedStateswillsatisfythe10%revenuetest.

Requirement2

Theappropriatetestvalueisthe"75%ofconsolidatedrevenues"testwhichis$112,125,000($149,500,000×75%).

Requirement3

CanadaandtheUnitedStateshavecombinedrevenuesthattotal$98,000,000.ThenextlargestsegmentinrevenuesisOtherEuropeanat$14,000,000whichwouldgetthetotalrevenuesto$112,000,000.Falconwouldhavetoreportoneadditionalsegment,EuropeanUnion,tomeetthe75%testforrevenue.

Objective:LO2,3

Difficulty:Moderate

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Forinternaldecision-makingpurposes,GeoghCorporationidentifiesitsindustrysegmentsbygeographicalarea.For2011,thetotalrevenuesofeachsegmentareprovidedbelow.Therearenointersegmentrevenues.

Total

Revenues

Canada

$980,000

UnitedStates

1,410,000

Mexico

1,260,000

SouthAmerica

430,000

China

710,000

Russia

660,000

Australia

370,000

EuropeanUnion

1,220,000

OtherEuropean

1,650,000

Totalrevenues

$8,690,000

Required:

Whichoperatingsegmentswillbeconsideredreportingsegmentsbasedontherevenuetest?

Whatisthetestvaluefordeterminingwhetherasufficientnumberofsegmentsarereported?

Whatwillbetheminimumnumberofsegmentsthatmustbereported?

Answer:

Requirement1

Thereportingsegmentswillbethosesegmentswhosesegmentrevenueis10%ormoreofthecombined

revenuesofalloperatingsegments,or$869,000($8,690,000×10%).Canada,UnitedStates,Mexico,EuropeanUnionandOtherEuropeanwillsatisfythe10%revenuetest.

Requirement2

Theappropriatetestvalueisthe"75%ofconsolidatedrevenues"testwhichis$6,517,500($8,690,000

×75%).

Requirement3

ThefivesegmentsidentifiedunderRequirement1total$6,520,000andthereforejustmeettheamountrequiredbythe75%test.Nofurthersegmentswillneedtobereported.

Objective:LO2,3

Difficulty:Moderate

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.

ThefollowingdatarelatetoElleCorporation'sindustrysegments.(ElleHQrepresentsthecorporateheadquarters).Allothersegmentsaregeographicalsalessegments.

Attribute

Europe

Russia

China

Japan

ElleHQ

Externalsales

$35,000

$24,000

$33,000

$0

$0

Intersegment

Sales

2,000

1,000

4,000

0

0

Expenses

27,000

18,000

29,000

5,000

12,000

Assetsassigned

20,000

22,000

30,000

14,000

15,000

Incomefrom

Equityinvestee

5,000

Required:

Prepareareportwhichreconcilesthereportablesegmentprofitstototalconsolidatedprofitsassumingthatcorporateexpensesarenotallocatedtotheoperatingsegments.

Prepareareportwhichreconcilesthereportablesegmentprofitstototalconsolidatedprofitsassumingthatcorporateexpensesareallocatedevenlyamongtheoperatingsegments.

Answer:Requirement1

Totalprofitorlossforreportablesegments

Europe:($35,000+$2,000-$27,000)=

$10,000

Russia:($24,000+$1,000-$18,000)=

7,000

China:($33,000+$4,000-$29,000)=

8,000

Japan:(-$5,000)

(5,000)

Totaloperatingprofitfromreportablesegments

$20,000

Plus:Incomefromequityinvestee

5,000

Less:Intersegmentrevenues

(7,000)

Less:Headquarter'sexpenses

(12,000)

Equals:Consolidatednetincome

$6,000

Requirement2

Totalprofitorlossforreportablesegments

Europe:($35,000+$2,000-$27,000-$3,000)+

Russia:($24,000+$1,000-$18,000-$3,000)+

China:($33,000+$4,000-$29,000-$3,000)+

Japan:(-$5,000-$3,000)=

Operatingprofitfromreportablesegments

$8,000

Plus:Incomefromequityinvestee

5,000

Less:Intersegmentrevenues

(7,000)

Equals:Consolidatednetincome

$6,000

Objective:

LO5

Difficulty:

Moderate

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IllianaCorporationhasseveralaccountingissueswithrespecttoitsinterimfinancialstatementsforthefirstquarterofcalendar2011.

Required:

Foreachoftheindependentsituationsgivenbelow,statewhetherornotthemethodproposedbyIllianaisacceptable.Justifyeachanswerwithappropriatereasoning.

Illianawillnotperformaphysicalinventoryattheendofthecalendarquarter.Itintendstoestimatethecostofsalesbyusingthegrossprofitinventorymethod.

Illianagrantsvolumediscountstoitscustomersbasedupontheirtotalannualpurchases.Thediscountsarecalculatedonaslidingscalerangingfrom1%to8%.Theamountofdiscountappliedwillprogressivelyincreaseforacustomerasthecumulativepurchasetotalforthecustomerincreasesduringtheyear.Illianawillusetheaveragerateofdiscountsearnedforeachcustomerintheprioryearastheexpecteddiscountrateforthecurrentyear.

Atthebeginningofthecurrentquarter,Illianaincurredalargelossonthesaleofsomeofitsmarketablesecurities.Itintendstodistributethelossevenlytoeachofthefourcalendarquarters.

Illianaincursmaintenancecostsduringitsyear-endholidayshutdown,buthasminimalmaintenancecostsduringtherestoftheyear.Itintendstodeductone-fourthoftheyearlyestimatedcostonitsinterimincomestatement.

Answer:

GAAPspecificallypermitstheuseofthegrossprofitmethodforestimatingendinginventoryandcostofsalesinthepreparationofinterimfinancialstatements.

GAAPpermitstheuseofreasonableestimatesbasedupontheexperienceofpriorperiodsforallocatingannualexpensestointerimperiods.Thisintegralapproachispermittedbutnotrequired.

Sincetheentirelosshasbeenrealizedinthefirstquarter,Illianahasnojustifiablebasisforallocatingthelosstotheotherquarters.GAAPrequiresthediscreteapproachforapermanentlossinvalue;ifthelosscouldnotbedeferredatyearendtoanotherperiod,thenitmaynotbedeferredtoanotherinterimperiod.Itmustshowtheentirelossinthefirstquarter.

GAAPpermitstheallocationofannualcoststotheinterimperiodstowhichtheyrelate.

Objective:LO7

Difficulty:Moderate

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JealeCorporationispreparingitsinterimfinancialstatementsforthethirdquarterofcalendar2011.Thefollowinginformationwasprovidedforthepreparationofthestatements:

1.

Creditsalesforthequarter

$1,700,000

2.

Cashsalesforthequarter

800,000

3.

Inventories,July1(FIFOcostmethod)

250,000

4.

Cashpurchasesofinventoryduringthequarter

400,000

5.

Inventorypurchasesmadeonaccountforthequarter

650,000

6.

Estimatedcostofgoodssoldratio

45%

7.

Sellingandgeneraladministrativeexpensespaid

111,000

8.

Effectivecorporatetaxrate

28%

9.

LossonsaleofsecuritiessoldonJune30,2011

75,000

10.

AnnualinsurancepremiumspaidonAugust1(the

84,000

anniversarydateofthepolicy)(Lastyear'sinsuranceexpenseis

includedingeneraladministrativeexpenses.)

Additionalinformation:

Attheendoftheyear,Jealeaccruesitsannualpensionanddepreciationexpenseswhichamountto$60,000and$42,000,respectively.

Required:

PrepareJeale'sinterimincomestatementforthethirdquarterofcalendar2011.

Answer:

JealeCorporation

InterimIncomeStatement

FortheCalendarQuarterEndingonSeptember30,2011

SalesRevenue($1,700,000+$800,000)

$

2,500,000

Less:

CostofGoodsSold(2,500,000

×45%)

1,125,000

Sellingandgeneralandadministrativeexpensespaid

111,000

Insuranceexpense($84,000/12months

×2months)

14,000

Depreciationexpense($42,000/4)

10,500

Estimatedpensionexpense($60,000/4)

15,000

Incomebeforetaxes

$

1,224,500

Incometaxexpense($1,224,500

×28%)

342,860

Netincome

$

881,640

Objective:

LO7,8

Difficulty:

Moderate

.

.

KrullCorporationispreparingitsinterimfinancialstatementsforthethirdquarterofcalendar2011.Thefollowingtrialbalanceinformationisavailableforthirdquarter:

Account

Debit

Credit

Cash

$98,000

AccountsReceivable

285,000

Inventory

750,000

Fixedassets

600,000

AccountsPayable

$300,000

CommonStock

50,000

RetainedEarnings

80,000

Sales

4,400,000

Administrativeexpense

312,000

Costofgoodssold

2,650,000

LossonsaleofsecuritiessoldonJuly30

75,000

AnnualequipmentoverhaulcostspaidonAugust1

60,000

Totals

$4,830,000

$4,830,000

Additionalinformation:

Attheendoftheyear,Krulldistributesannualemployeebonusesandcharitabledonationsthatareestimatedat$40,000,and$12,000,respectively.Thecostofgoodssoldincludestheliquidationofa$45,000baselayerininventorythatKrullwillrestoreinthefourthquarteratacostof$75,000.Effectivecorporatetaxratefor2011is32%.

Required:

PrepareKrull'sinterimincomestatementforthethirdquarterofcalendar2011.

Answer:

KrullCorporation

InterimIncomeStatement

FortheCalendarQuarterEndingonSeptember30,2011

SalesRevenue

$4,400,000

Less:

CostofGoodsSold($2,650,000+$30,000LIFObasereplacement)

2,680,000

Administrativeexpenses

312,000

Lossonsaleofsecurities

75,000

Bonusexpense($40,000/4)

10,000

Charitablecontributionexpense($12,000/4)

3,000

Maintenanceexpense($60,000/4)

15,000

Incomebeforetaxes

$1,305,000

Incometaxexpense($1,305,000×32%)

417,600

Netincome

$887,400

Objective:

LO7,8

Difficulty:

Moderate

.

.

12)LeotronixCorporationestimatesitsincomebycalendarquarterasfollowsfor2011:

1st

2nd

3rd

4th

2011

Quarter

Quarter

Quarter

Quarter

Total

Est.Income

$30,000

$40,000

$40,000

$50,000

$160,000

IncometaxratesapplicabletoLeotronix:

From:$0to$50,000

15%

From:$50,001to$75,000

25%

Over:$75,000

35%

Required:

DetermineLeotronix'sestimatedeffectivetaxrate.

Answer:

Incometaxonestimatedincome

Firstquarter

($30,000×15%)

$4,500

Secondquarter

($20,000×15%)+($20,000

×25%)

8,000

Thirdquarter

($5,000×25%)+($35,000

×35%)

13,500

Fourthquarter

($50,000×35%)

17,500

Totalestimatedtaxes

$43,500

Effectivetaxrate=Totalestimatedtaxesdivided

bytotalestimatedincome=$43,500/$160,000=

27.19%

Objective:

LO8

Difficulty:

Moderate

.

.

13)MaxtilCorporationestimatesitsincomebycalendarquarterasfollowsfor2011:

1st

2nd

3rd

4th

2011

Quarter

Quarter

Quarter

Quarter

Total

Est.Income

$40,000

$30,000

$20,000

$20,000

$110,000

IncometaxratesapplicabletoMaxtil:

From:$0to$50,000

15%

From:$50,001to$75,000

25%

Over:$75,000

35%

Required:

DetermineMaxtil'sestimatedeffectivetaxrate.

Answer:

Incometaxonestimatedincome

Firstquarter

($40,000×15%)

$6,000

Secondquarter

($10,000×15%)+($20,000

×25%)

6,500

Thirdquarter

($5,000×25%)+($15,000

×35%)

6,500

Fourthquarter

($20,000×35%)

7,000

Totalestimatedtaxes

$26,000

Effectivetaxrate=Totalestimatedtaxesdivided

bytotalestimatedincome=$26,000/$110,000=

23.64%

Objective:

LO8

Difficulty:

Moderate

.

.

NettleCorporationispreparingitsfirstquarterlyinterimreport.Itissubjecttoacorporateincometaxrateof20%onthefirst$50,000oftaxableincomeand35%ontaxableincomeabove$50,000.Itsestimatedpretaxaccountingincomefor2011,byquarter,is:

1st

2nd

3rd

4th

2011

Quarter

Quarter

Quarter

Quarter

Total

Est.Income

$75,000

$165,000

$143,000

$120,000

$503,000

Nettleexpectstoearnandreceiveoperatingincomefortheyearanddoesnotcontemplateanychangesinaccountingproceduresorprinciplesthatwouldaffectitspretaxaccountingincome.

Required:

DetermineNettle'sestimatedeffectivetaxratefor2011.

PrepareascheduletoshowNettle'sestimatednetincomeforeachquarterof2011.

Answer:

Requirement1

Calculationofestimatedeffectivetaxrate

Firstquarter

($50,000×20%+$25,000×35%)

$18,750

Secondquarter

($165,000

×35%)

57,750

Thirdquarter

($143,000

×35%)

50,050

Fourthquarter

($120,000

×35%)

42,000

Totalestimatedtaxes

$168,550

Effectivetaxrate=Totalestimatedtaxesdivided

bytotalestimatedincome=$168,550/$503,000=

33.51%

Requirement2

1st

2nd

3rd

4th

Quarter

Quarter

Quarter

Quarter

2011

Y-T-Dincome

$75,000

$240,000

$383,000

$503,000

$503,000

Quarterlyincome

75,000

165,000

143,000

120,000

Incometax**

-25,132

-55,290

-47,918

-40,211

-168,551

EstimatedNI

$49,868

$109,710

$95,082

$79,789

$334,449

**(Deductedat33.509%)

Objective:LO8

Difficulty:Moderate

.

.

15)OsprinCorporationhasthreeoperatingsegments,assummarizedbelow:

Capsule

Pill

Liquid

Total

Salestoretailers

25,000

35,000

5,000

65,000

Intersegmentsal