Chapter 13, Problem 13.9C

a

To determine

Concept introduction: An interim report is a report for less than one year that provides a continuous update about the performance of the business operating throughout the year. The interim report can be for a week, a month, a quarter, or more than one quarter. Public limited companies are required to publish quarterly reports. It is a similar smaller version of the annual report. SEC requires companies to submit a quarterly report in Form 10-Q within 35 days after the end of each quarter.

The number of income statements would be presented in third quarter of fiscal year in preparation of Form 10-Q.

Answer to Problem 13.9C

In third quarter company would produce four types of income statements.

Explanation of Solution

For the interim reporting in the third-quarter SEC requires four types of income statements in Form 10-Q, as follows:

• An income statement for the third quarter and a comparative income for the third quarter of the previous year.
• An income statement presenting cumulative balances of the first three quarters of the current year and cumulative income statement for the first three quarters of the previous year for comparison.

b

To determine

Concept introduction: An interim report is a report for less than one year that provides a continuous update about the performance of the business operating throughout the year. The interim report can be for a week, a month, a quarter, or more than one quarter. Public limited companies are required to publish quarterly reports. It is a similar smaller version of the annual report. SEC requires companies to submit a quarterly report in Form 10-Q within 35 days after the end of each quarter.

The reporting of change in the accounting principle for depreciation of its buildings that was made effective from the first day of the third quarter, based on the given study.

Answer to Problem 13.9C

Change in method of depreciation is required when change in accounting principles takes place.

Explanation of Solution

An accounting study concluded that the estimated future benefit from equipment will be different from those of previous years. The study suggested a change in accounting principle required by FASB 154. It says that change in depreciation method be recognized as the change in accounting estimate is affected by a change in accounting principle.

c

To determine

Concept introduction: An interim report is a report for less than one year that provides a continuous update about the performance of the business operating throughout the year. The interim report can be for a week, a month, a quarter, or more than one quarter. Public limited companies are required to publish quarterly reports. It is a similar smaller version of the annual report. SEC requires companies to submit a quarterly report in Form 10-Q within 35 days after the end of each quarter.

The types of balance sheets would company present, and what is the date of each balance sheet.

Answer to Problem 13.9C

In third quarter company would produce four types of balance sheets.

Explanation of Solution

At the end of the third quarter, the company would report a condensed balance sheet and condensed balance sheet at the end of the previous year. The company should also produce a comparative condensed balance sheet as of the end of the third quarter of the previous fiscal year to facilitate the necessary understanding of seasonal fluctuation of the financial position of the company.

d

To determine

Concept introduction: An interim report is a report for less than one year that provides a continuous update about the performance of the business operating throughout the year. The interim report can be for a week, a month, a quarter, or more than one quarter. Public limited companies are required to publish quarterly reports. It is a similar smaller version of the annual report. SEC requires companies to submit a quarterly report in Form 10-Q within 35 days after the end of each quarter.

The regulations for interim balance sheet with regards to audit, if the filed balance sheet should be audited or not.

Answer to Problem 13.9C

Interim financial statements does not need audit.

Explanation of Solution

The company does not require to file audited financial statements in the interim period, however, it is up to the company’s discretion to file an audited balance sheet, as summary amounts from interim financial statements are included in annual financial reports, and an audited financial statement can be used to review.

e

To determine

Concept introduction: An interim report is a report for less than one year that provides a continuous update about the performance of the business operating throughout the year. The interim report can be for a week, a month, a quarter, or more than one quarter. Public limited companies are required to publish quarterly reports. It is a similar smaller version of the annual report. SEC requires companies to submit a quarterly report in Form 10-Q within 35 days after the end of each quarter.

The requirement of segment information disclosure in interim report, if it is same as annual disclosures.

Answer to Problem 13.9C

Yes segment disclosures are also required in interim report.

Explanation of Solution

FASB 131 requires disclosure of segment information in interim report, but it does not require detailed disclosures as required in annual financial reporting.

f

To determine

Concept introduction: An interim report is a report for less than one year that provides a continuous update about the performance of the business operating throughout the year. The interim report can be for a week, a month, a quarter, or more than one quarter. Public limited companies are required to publish quarterly reports. It is a similar smaller version of the annual report. SEC requires companies to submit a quarterly report in Form 10-Q within 35 days after the end of each quarter.

The timing of quarterly reporting of Form 10-Q.

Answer to Problem 13.9C

Form 10-Q must be filed within 35 days of end of third quarter.

Explanation of Solution

Publicly owned companies must file Form 10-Q within 35 days after the end of each of the first three quarters. If the company does not meet the criteria of accelerated files must file within 45 days after the end of each of the first three quarters.

g

To determine

Concept introduction: An interim report is a report for less than one year that provides a continuous update about the performance of the business operating throughout the year. The interim report can be for a week, a month, a quarter, or more than one quarter. Public limited companies are required to publish quarterly reports. It is a similar smaller version of the annual report. SEC requires companies to submit a quarterly report in Form 10-Q within 35 days after the end of each quarter.

The method of accounting used for interim reporting and annual, can it use different accounting methods for computing interim and annual total revenues.

Answer to Problem 13.9C

The method of computing revenues for interim and annual reporting should be same.

Explanation of Solution

The method of computing interim reporting revenue and annual reporting for financial statements must be the same because it allows easy comparison by users of accounting information. However, if there is a change in accounting principle, it affects the computation of revenue. It must be retrospectively applied to all prior interim periods.

h

To determine

Concept introduction: An interim report is a report for less than one year that provides a continuous update about the performance of the business operating throughout the year. The interim report can be for a week, a month, a quarter, or more than one quarter. Public limited companies are required to publish quarterly reports. It is a similar smaller version of the annual report. SEC requires companies to submit a quarterly report in Form 10-Q within 35 days after the end of each quarter.

The valuation of inventory at the end of each quarter, and determine the computation of ending inventory and cost of goods sold at the end of each quarter.

Answer to Problem 13.9C

Physical count of inventory is not required at the end of each quarter

Explanation of Solution

A physical count of inventory is not required at the end of each quarter although a physical count of inventory is required at the end of the year for audit procedure. Ending inventory is estimated at the end of each quarter based on the beginning inventory and purchase of inventory cost of goods sold estimated by using the following method.

Cost of goods sold = beginning inventory + purchase of inventory − closing inventory

Cost of sales is also estimated using mark-up percentages from cost of retail.

i

To determine

Concept introduction: An interim report is a report for less than one year that provides a continuous update about the performance of the business operating throughout the year. The interim report can be for a week, a month, a quarter, or more than one quarter. Public limited companies are required to publish quarterly reports. It is a similar smaller version of the annual report. SEC requires companies to submit a quarterly report in Form 10-Q within 35 days after the end of each quarter.

The allocation of retooling cost incurred in third quarter to other three quarters during the year.

Answer to Problem 13.9C

Company must allocate retooling cost using a rational method.

Explanation of Solution

When any cost is incurred in a quarter, it is allocated keeping in mind that it benefits the entire year. For example, the cost incurred with retooling efforts is shutdown each year for the purpose of retooling during the short term of the company. There are many allocation methods for such retooling costs. The available methods could be allocating of one-fourth cost to each quarter or allocation of cost to proportional sales revenue during the year. The selection of the allocation method must be done using a rational approach.

j

To determine

Concept introduction: An interim report is a report for less than one year that provides a continuous update about the performance of the business operating throughout the year. The interim report can be for a week, a month, a quarter, or more than one quarter. Public limited companies are required to publish quarterly reports. It is a similar smaller version of the annual report. SEC requires companies to submit a quarterly report in Form 10-Q within 35 days after the end of each quarter.

The method of reporting change in accounting principle from complete contact method of revenue recognition to the percentage of completion method of revenue recognition on its long-term construction contracts.

Answer to Problem 13.9C

Change in accounting method requires retrospective application.

Explanation of Solution

FASB 154 requires retrospective application of a change in accounting principles across all periods, including prior interim periods. The company should be able to determine the effects of the change in previous interim periods, otherwise, the company must wait until the first day of the next fiscal year to make the change.

k

To determine

Concept introduction: An interim report is a report for less than one year that provides a continuous update about the performance of the business operating throughout the year. The interim report can be for a week, a month, a quarter, or more than one quarter. Public limited companies are required to publish quarterly reports. It is a similar smaller version of the annual report. SEC requires companies to submit a quarterly report in Form 10-Q within 35 days after the end of each quarter.

The restating of first two quarters of tax expense because of the change in information received in third quarter, under the given conditions.

Answer to Problem 13.9C

The change in estimate is treated currently and retrospectively.

Explanation of Solution

Prior interim changes are not restated for change in estimates, but a change in estimate is treated currently and retrospectively. This change in the estimate would be made effective as of the first day of the interim period in which the change is made.