a
Introduction:
Interim reporting: Interim report cover a time period of less than a year, interim report can be far a week, a month, a quarter or more than one quarter. Many companies prepare monthly financial statements for internal management purposes. It presents a number of conceptual and measurement issues. Most of these are related to accounting concepts of periodicity and the division of the annual periods. ASC 250 requires three categories of accounting changes: (1) change in accounting principle, (2) change in an accounting estimate, and (3) change in reporting entity.
ASC 270 issued guidelines for the standardization of interim income statements. The standard also defines the income and measurement of costs on an interim basis. It provides guidelines for the annual report disclosures and interim disclosures and adjustments required to make interim figures to annual figures.
To explain: The recognition of revenue, product cost, gains, and losses for interim periods.
b
Interim reporting: Interim report cover a time period of less than a year, interim report can be far a week, a month, a quarter, or more than one quarter. Many companies prepare monthly financial statements for internal management purposes. It presents a number of conceptual and measurement issues. Most of these are related to accounting concepts of periodicity and the division of the annual periods. ASC 250 requires three categories of accounting changes: (1) change in accounting principle, (2) change in an accounting estimate, and (3) change in reporting entity.
ASC 270 issued guidelines for the standardization of interim income statements. The standard also defines the income and measurement of costs on an interim basis. It provides guidelines for the annual report disclosures and interim disclosures and adjustments required to make interim figures to annual figures.
To explain: The difference in determination of cost of goods sold and inventory for interim period report versus annual reports.
c
Interim reporting: Interim report cover a time period of less than a year, interim report can be far a week, a month, a quarter, or more than one quarter. Many companies prepare monthly financial statements for internal management purposes. It presents a number of conceptual and measurement issues. Most of these are related to accounting concepts of periodicity and the division of the annual periods. ASC 250 requires three categories of accounting changes: (1) change in accounting principle, (2) change in an accounting estimate, and (3) change in reporting entity.
ASC 270 issued guidelines for the standardization of interim income statements. The standard also defines the income and measurement of costs on an interim basis. It provides guidelines for the annual report disclosures and interim disclosures and adjustments required to make interim figures to annual figures.
To explain: The interim accounting treatment of period costs such as
d
Interim reporting: Interim report cover a time period of less than a year, interim report can be far a week, a month, a quarter, or more than one quarter. Many companies prepare monthly financial statements for internal management purposes. It presents a number of conceptual and measurement issues. Most of these are related to accounting concepts of periodicity and the division of the annual periods. ASC 250 requires three categories of accounting changes: (1) change in accounting principle, (2) change in an accounting estimate, and (3) change in reporting entity.
ASC 270 issued guidelines for the standardization of interim income statements. The standard also defines the income and measurement of costs on an interim basis. It provides guidelines for the annual report disclosures and interim disclosures and adjustments required to make interim figures to annual figures.
To explain: The treatment of long-term contracts, advertising, seasonable revenue flood loss, and annual major repair and maintenance to plant and equipment during the last two weeks in December.
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Chapter 13 Solutions
Advanced Financial Accounting
- Generally accepted accounting principles should be applied consistently from period to period. However, changeswithin a company, as well as changes in the external economic environment, may force a company to change anaccounting method. The specific reporting requirements when a company changes from one generally acceptedinventory method to another depend on the methods involved.Required:Explain the accounting treatment for a change in inventory method (a) not involving LIFO, (b) from the LIFOmethod, and (c) to the LIFO method. Explain the logic underlying those treatments. Also, describe how disclosurerequirements are designed to address the departure from consistency and comparability of changes in accountingprinciplearrow_forwardIf the dollar amount in ending accounts payable is greater than the dollar amount in beginning accounts payable, then a. inventory must have increased during the period. b. cost of goods sold must be greater in this period than in the prior period. c. cost of goods sold must have increased by the same amount. d. payments to suppliers during the period must have been less than the amount of inventory purchased on account. e. cash must have decreased by the same amount. Choose the best answer choicearrow_forwardWhen preparing interim financial statements, what two methods can companies utilize to estimate cost of goods sold and ending inventory?arrow_forward
- (Recognition of Revenue—Theory) Revenue is recognized for accounting purposes when a performance obligation is satisfied. In some situations, revenue is recognized over time as the fair values of assets and liabilities change. In other situations, however, accountants have developed guidelines for recognizing revenue at the point of sale.Instructions(Ignore income taxes.)(a) Explain and justify why revenue is often recognized at time of sale.(b) Explain in what situations it would be appropriate to recognize revenue over time.arrow_forwardStatement 1 : Expenses associated directly with revenue are matched against revenue in those interim periods in which the related revenue is recognized. Statement 2 : Inventory losses from permanent market declines are recognized in the interim period in which the decline occurs. Recoveries of such losses on the same inventory in later interim period should be recognized as gains in the interim periods where the decline occurred. Only statement 1 is true Only statement 2 is true Both statements are false Both statements are truearrow_forwardPrepare a memorandum containing responses to the following items. a. Describe the cost flow assumptions used in average-cost, FIFO, and LIFO methods of inventory valuation. b. Distinguish between weighted-average-cost and moving-average-cost for inventory costing purposes. c. Identify the effects on both the balance sheet and the income statement of using the LIFO method instead of the FIFO method for inventory costing purposes over a substantial time period when purchase prices of inventoriable items are rising. State why these effects take place.arrow_forward
- An analyst must be familiar with the concepts involved in determining income. The amount of in- come reported for a company depends on the recognition of revenues and expenses for a given time period. In certain cases, costs are recognized as expenses at the time of product sale; in other situations, guidelines are applied in capitalizing costs and recognizing them as expenses in future periods. Explain the rationale for recognizing costs as expenses at the time of product sale. What is the rationale underlying the appropriateness of treating costs as expenses of a period instead of assigning the costs to an asset? Explain. Under what circumstances is it appropriate to treat a cost as an asset instead of as an expense? Explain. Certain expenses are assigned to specific accounting periods on the basis of systematic and rational allocation Identify the conditions necessary to treat a cost as a loss.arrow_forward1. On which of the following instances is cost estimation not permitted? A. Estimating the cost of inventory destroyed by fire or other natural calamities. B. Presenting the value of inventory in an interim financial statement. C. Reporting of inventory at the Statement of Financial Position at year-end. D. Estimating the value of inventory missing because of theft. 2. Under the gross profit method, if the gross profit rate is based on cost, the cost of sales is computed as A. Gross sales times cost ratio B. Net sales divided by sales ratio C. Net sales times cost ratio D. Gross sales divided by sales ratio 3. In computing cost ratio, the conservative/conventional retail method should A. Exclude mark-up but not markdown B. Include mark-up and markdown C. Exclude mark-up and markdown D. Include mark-up but not markdownarrow_forwardWhich of the following is accounted for prospectively? Change in reporting entity. Change in the percentage used to determine warranty expense. Correction of an error. Changes from the weighted-average method of inventory costing to FIFO.arrow_forward
- Please prepare a cost by nature/expense by nature income statement for the following points. In particular please explain whether point a) (first point) should be included in the income statement. In point a), Is there sufficient information for write-off expenses to be recorded in the income statement and should write-off of assets be included in the income statement? a) Write off (in minus) of short-term financial assets 9 000b) Other costs by nature 4 000c) Change in inventories of traded goods + 2 000d) Revenue from sale of building 50 000e) Income tax 10%f) Revenue from sale of traded goods 12 000g) Retained profits from previous years 10 000h) Accumulated depreciation of building 49 000i) Historical cost of building 102 000arrow_forwardWhen a company uses LIFO for external reporting purposes FIFO for internal reporting pusposes, an Allowance to Reduce Inventory to LIFO account is used. This account should be reported? A) on the income statement in the other Revenue and gains section. B) on the income statement in the cost of goods sold section. C) on the income statement in the other Expenses and losses section. D) on the balance sheet in the current asset section.arrow_forward. XYZ Inc. changes its method of valuation of inventories from weighted-average method to first-in, first-out (FIFO) method. XYZ Inc. should account for this change as (a) A change in estimate and account for it prospectively. (b) A change in accounting policy and account for it prospectively. (c) A change in accounting policy and account for it retrospectively. (d) Account for it as a correctioarrow_forward
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