3-24-23 Solution

Chapter 8 Interim Reporting
1. How should revenues be recognized in interim periods?
a. In the same way as they are recognized on an annual basis.

b. On the cash basis.
c. On an annualized basis.
d. On a seasonal basis.
e. There are no revenues recognized in interim periods.
2. What are the two approaches that can be followed in preparing interim reports?
a. Indiscrete and terminal.

b. Discrete and terminal.
c. Metric and integral.
d. Discrete and integral.
e. Discrete and metric.
3. Which of the following is not correct regarding inventory procedures reported in an interim financial
statement?
a) LIFO liquidations a company expects to be replaced by year-end should be recorded in cost of goods
sold, quantified at expected replacement cost rather than original LIFO cost.
b) Lower-of-cost-or-net realizable value adjustments are not made for the interim period if they are
expected to reverse by the end of the year.
c) Variances in a standard costing system are reported at the end of the interim period unless they are
expected to be absorbed by year-end.
d) FIFO is remeasured using the LIFO method in an interim financial statement.
e) LIFO liquidations not expected to be replaced by the end of the year are reflected in cost of goods sold
at original LIFO cost.
4. Cement Company, Inc. began the first quarter with 1,000 units of inventory costing $25 per unit. During
the first quarter, 3,000 units were purchased at a cost of $40 per unit, and sales of 3,400 units at $65 per
units were made. During the second quarter, the company expects to replace the units of beginning
inventory sold at a cost of $45 per unit. Cement Company uses the LIFO method to account for
inventory.
The amount of gross profit for the first quarter is:
a. $83,000
b. $87,000
c. $90,000
d. $221,000
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e. $250,000
Rev (3,400 × $65) $221,000 − COGS (3,000 × $40 + 400 × $45) $138,000 = $83,000 Gross Profit
Interim statements should not reflect the effect of a LIFO liquidation if the units of beginning inventory sold are
expected to be replaced by year-end; inventory should not be written down to a lower market value if the
market value is expected to recover above the inventory's cost by year-end;
5. Betsy Kirkland, Inc. incurred a flood loss during the first quarter of 2021 that is deemed both unusual
and not expected to recur again in the near future. The loss is considered immaterial to the twelve-month
period, but is material in amount relative to the first quarter. The proper accounting treatment in the first
quarter interim statement is to:
a. Ignore the loss.

b. Record the loss in the first quarter as an unusual loss, net of income taxes.
c. Record one-fourth of the loss in the first quarter as an unusual loss, net of income taxes.
d. Ignore the loss in the first quarter, and record it in the annual statement only.
e. Record the loss in the first quarter, but not as an unusual loss, and disclose the loss in a separate note or
in the income statement as a separate line item.
6. How should a change from one generally accepted accounting principle to another accepted principle be
handled in a third-quarter income statement?
a. Retrospectively restate the first-quarter income statement, net of income taxes, as though the change
occurred at the beginning of the year.
b. Postpone recording of the change to the annual income statement.
c. Record the change in the third-quarter income statement, net of income taxes.
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d. Adjust financial statements for each prior period presented to reflect the effects of the new principle in
those reported periods.
e. These changes are prohibited by GAAP.
7. Which of the following is not a required disclosure in an interim financial report?

a. Sales or gross revenues.
b. Provision for income taxes.
c. Cash flow information.
d. Changes in accounting principles.
e. Seasonal revenues and expenses.
8. Which of the following is reported for interim financial reports using the integral approach?
a. Bonus expense.
b. Gross profit.
c. Cash basis accounting.
d. Current market value.
e. Segment level management compensation.
9. All of the following are required to be reported in interim financial statements with respect to material
operating segments, except:
a. Segment assets.
b. Segment revenues from external customers.
c. Intersegment revenues.
d. Segment profit or loss.
e. Reconciliation of segment profit or loss to total income before taxes.
10. What is the appropriate treatment in an interim financial report for inventory with a net realizable value
below cost?
a. The loss should always be recorded in the interim period in which net realizable value drops below cost.
b. The loss should be recorded in the interim period in which net realizable value drops below cost if the
loss is considered temporary.
c. The loss should be recorded in the interim period in which net realizable value drops below cost if the
loss is considered permanent.
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d. The loss should be ignored for interim reporting purposes.
e. There is no loss to report.

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Chapter 8 Interim Reporting

1. How should revenues be recognized in interim periods?

a. In the same way as they are recognized on an annual basis.

a. Indiscrete and terminal.

The amount of gross profit for the first quarter is:

a. Ignore the loss.

7. Which of the following is not a required disclosure in an interim financial report?

e. Reconciliation of segment profit or loss to total income before taxes.

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