Learning Materials
Features
Discover
Chapter 24: 12Q (page 1445)
An article in the financial press entitled “Important Information in Annual Reports This Year” noted that annual reports include a management’s discussion and analysis section. What would this section contain?
Liquidity, Capital Asset, and results of operation.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period. In general, the results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year. The Board has concluded, however, that certain accounting principles and practices followed for annual reporting purposes may require modification at interim reporting dates so that the reported results for the interim period may better relate to the results of operations for the annual period.
Instructions
The following six independent cases present how accounting facts might be reported on an individual company’s interim financial reports. For each of these cases, state whether the method proposed to be used for interim reporting would be acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.
d) Gansner Company realized a large gain on the sale of investments at the beginning of the second quarter. The company wants to report one-third of the gain in each of the remaining quarters.
As a loan analyst for Utrillo Bank, you have been presented with the following information.
Toulouse Co. | Lautrec Co. | |
Assets | ||
Cash | \(120,000 | \) 320,000 |
Receivables | 220,000 | 302,000 |
Inventories | 570,000 | 518,000 |
Total current assets | 910,000 | 1,140,000 |
Other assets | 500,000 | 612,000 |
Total assets | \(1,410,000 | \)1,752,000 |
Liabilities and Stockholders’ Equity | ||
Current liabilities | \( 305,000 | \) 350,000 |
Long-term liabilities | 400,000 | 500,000 |
Capital stock and retained earnings | 705,000 | 902,000 |
Total liabilities and stockholders’ equity | \(1,410,000 | \)1,752,000 |
Annual sales | \(930,000 | \)1,500,000 |
Rate of gross profit t on sales | 30% | 40% |
Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered. Because your bank has reached its quota for loans of this type, only one of these requests is to be granted.
Instructions
Which of the two companies, as judged by the information given above, would you recommend as the better risk and why? Assume that the ending account balances are representative of the entire year.
(Post-Balance-Sheet Events) For each of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose.
The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period. In general, the results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year. The Board has concluded, however, that certain accounting principles and practices followed for annual reporting purposes may require modification at interim reporting dates so that the reported results for the interim period may better relate to the results of operations for the annual period.
Instructions
The following six independent cases present how accounting facts might be reported on an individual company’s interim financial reports. For each of these cases, state whether the method proposed to be used for interim reporting would be acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.
f) LaBrava Company was reasonably certain it would have an employee strike in the third quarter. As a result, it shipped heavily during the second quarter but plans to defer the recognition of the sales in excess of the normal sales volume. The deferred sales will be recognized as sales in the third quarter when the strike is in progress. LaBrava Company management thinks this is more representative of normal second- and third-quarter operations.
Under IFRS, share dividends declared after the statement of financial position date but before the end of the subsequent events period are:
a) accounted for similar to errors as a prior period adjustment.
b) adjusted subsequent events, because they are paid from prior year earnings.
c) not adjusted in the current year’s financial statements.
d) recognized on a prospective basis from the date of declaration
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Exams 
GCSE 
IGCSE 
AS 
A Level 
International A Level 
University Admissions Tests 
Flashcards 
Vaia AI 
Notes 
Study Plans 
Study Sets 
Find a job 
Find a degree 
Student Deals 
Magazine 
Mobile App