Interim Financial Reporting.docx
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Chapter 45 Interim Financial Reporting
PROBLEM 45-1: TRUE OR FALSE 1. FALSE 6. FALSE 2.
TRUE
7.
FALSE
3.
FALSE
8.
TRUE
4.
TRUE
9.
FALSE
5.
FALSE
10.
TRUE
PROBLEM 45-2: IDENTIFICATION 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
IMMEDIATELY IMMEDIATELY IMMEDIATELY IMMEDIATELY SPREAD OUT SPREAD OUT IMMEDIATELY SPREAD OUT IMMEDIATELY IMMEDIATELY IMMEDIATELY IMMEDIATELY SPREAD OUT SPREAD OUT IMMEDIATELY
PROBLEM 45-3: MULTIPLE CHOICE – THEORY 6. C 1. D 7. B 2. C 8. C 3. A 9. C 4. D 10. A 5. D
1
PROBLEM 45-4: THEORY & COMPUTATIONAL 1.
D
2.
A
3.
B
4.
B
5.
B
6.
C
7.
A
8.
Solution:
Revenue Cost of goods sold Gross profit Other operating expenses Loss on inventory write-down (2.2M – 2.8M) Interest income (2M x 12% x 3/12) Profit Other comprehensive income: Unrealized loss on FVOCI [450K – (500K + 60K)] Comprehensive income 9. Solution: Revenue Cost of goods sold Gross profit Other operating expenses Property tax expense (1.2M x 1/4) Depreciation expense [(1.2M / 5) x 3/12] Insurance expense Profit Other comprehensive income: Revaluation increase (4.4M - 3.8M) Comprehensive income
2
7,000,000 (3,000,000) 4,000,000 (2,800,000) (300,000) (60,000) (15,000) 825,000 600,000 1,425,000
9,000,000 (5,000,000) 4,000,000 (2,800,000) (600,000) 60,000 660,000 (110,000) 550,000
10. Solution: Revenue Cost of goods sold Gross profit Other operating expenses Salaries expense (2.8M x 3/12) Impairment loss Profit from continuing operations Discontinued operations Profit for the year
9,000,000 (3,000,000) 6,000,000 (2,800,000) (700,000) (500,000) 2,000,000 (700,000) 1,300,000
11. Solution: Estimated annual profit before tax Less: Operating loss carryforward Total Multiply by: Estimated annual income tax expense Divide by: Estimated annual profit before tax Weighted average income tax rate
1,200,000 (300,000) 900,000 30% 270,000 1,200,000 22.50%
Profit before tax - 1st quarter Multiply by: Weighted ave. tax rate Income tax expense
350,000 22.50% 78,750
PROBLEM 45-5: MULTIPLE CHOICE – COMPUTATIONAL 1. B 70,000 loss recognized immediately; (100,000 x ¼) = 25,000 insurance expense allocated to the quarter 2. C Solution: Depreciation expense (60,000 x 6/12) Salaries expense - bonus (120,000 x 6/12) Total expense for the semi-annual period 3. B Solution: Property tax (180,000 x 1/4) Costs benefitting the remainder of the year (300,000 x 1/3) Total expense for the 2nd quarter 3
30,000 60,000 90,000
45,000 100,000 145,000
4. C 5. B (-20,000 - 30,000 + 90,000) = 40,000 6. C (200,000 x 25%) = 50,000 7. C – The entire write-down of 900,000 is recognized in the 2nd quarter. 8. D 9. C 10. B Solution: Estimated annual profit before tax Less: Operating loss carryforward (120K / 30%) Total Multiply by: Estimated annual income tax expense Divide by: Estimated annual profit before tax Weighted average income tax rate
Profits before taxes Multiply by: Weighted ave. tax rate Income tax expense
1,200,000 (400,000) 800,000 30% 240,000 1,200,000 20.00%
1st Qtr. 350,000
2nd Qtr. 200,000
3rd Qtr. 400,000
20.00%
20.00%
20.00%
70,000
40,000
80,000
4
PROBLEM 45-6: EXERCISES – COMPUTATIONAL 1.
Solution:
Revenue Cost of goods sold Gross profit Other operating expenses Property tax expense Impairment loss Loss
9,000,000 (5,000,000) 4,000,000 (2,800,000) (250,000) (600,000) 350,000
The write-up is not recognized because there are no write-downs in the past.
2.
Solution:
Revenue Cost of goods sold Gross profit Other operating expenses Insurance expense (60K x 3/24) Commission expense Unrealized gain (1.45M - 1.5M) Profit from continuing operations Discontinued operations (2.8M - 3M) + 800K Profit for the year Other comprehensive income: Comprehensive income
3.
9,000,000 (5,000,000) 4,000,000 (2,800,000) (7,500) (80,000) (50,000) 1,062,500 (1,000,000) 62,500 62,500
Solution: 9,000,000 (5,000,000) 4,000,000 (2,800,000)
Revenue Cost of goods sold Gross profit Other operating expenses Employee benefits Depreciation expense (see solution below) Interest income (1.2M x 10% x 3/12)
(450,000) (45,000) 30,000
Profit for the year
735,000
By trial and error, the depreciation method used by Puppy is determined to be the SYD method. Trial and error: Historical cost (squeeze)
1,000,000
5
Accumulated depreciation Carrying amount - 1/1/x1
(540,000) 460,000
Historical cost Residual value Depreciable amount
1,000,000 (100,000) 900,000
Depreciation - 1st yr. (900K x 5/15) Depreciation - 2nd yr. (900K x 4/15) Accumulated depreciation - 1/1/x1
300,000 240,000 540,000
Depreciation - 20x1 (900K x 3/15) Multiply by: Depreciation - 1st qtr.
180,000 3/12 45,000
4. Solution: Estimated annual profit before tax Less: Operating loss carryforward (300K / 30%) Total Multiply by: Estimated annual income tax expense Divide by: Estimated annual profit before tax Weighted average income tax rate Profit before tax - 1st quarter Multiply by: Weighted ave. tax rate Income tax expense
1,200,000 (1,000,000) 200,000 30% 60,000 1,200,000 5.00% 350,000 5.00% 17,500
5. Solution: Estimated annual profit before tax Less: Operating loss carryforward Total Multiply by: Estimated annual income tax expense Divide by: Estimated annual profit before tax Weighted average income tax rate Profit before tax - 1st quarter Multiply by: Weighted ave. tax rate
800,000 (100,000) 700,000 30% 210,000 800,000 26.25% 280,000 26.25%
6
Income tax expense
73,500
7
PROBLEM 45-1: TRUE OR FALSE 1. FALSE 6. FALSE 2.
TRUE
7.
FALSE
3.
FALSE
8.
TRUE
4.
TRUE
9.
FALSE
5.
FALSE
10.
TRUE
PROBLEM 45-2: IDENTIFICATION 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
IMMEDIATELY IMMEDIATELY IMMEDIATELY IMMEDIATELY SPREAD OUT SPREAD OUT IMMEDIATELY SPREAD OUT IMMEDIATELY IMMEDIATELY IMMEDIATELY IMMEDIATELY SPREAD OUT SPREAD OUT IMMEDIATELY
PROBLEM 45-3: MULTIPLE CHOICE – THEORY 6. C 1. D 7. B 2. C 8. C 3. A 9. C 4. D 10. A 5. D
1
PROBLEM 45-4: THEORY & COMPUTATIONAL 1.
D
2.
A
3.
B
4.
B
5.
B
6.
C
7.
A
8.
Solution:
Revenue Cost of goods sold Gross profit Other operating expenses Loss on inventory write-down (2.2M – 2.8M) Interest income (2M x 12% x 3/12) Profit Other comprehensive income: Unrealized loss on FVOCI [450K – (500K + 60K)] Comprehensive income 9. Solution: Revenue Cost of goods sold Gross profit Other operating expenses Property tax expense (1.2M x 1/4) Depreciation expense [(1.2M / 5) x 3/12] Insurance expense Profit Other comprehensive income: Revaluation increase (4.4M - 3.8M) Comprehensive income
2
7,000,000 (3,000,000) 4,000,000 (2,800,000) (300,000) (60,000) (15,000) 825,000 600,000 1,425,000
9,000,000 (5,000,000) 4,000,000 (2,800,000) (600,000) 60,000 660,000 (110,000) 550,000
10. Solution: Revenue Cost of goods sold Gross profit Other operating expenses Salaries expense (2.8M x 3/12) Impairment loss Profit from continuing operations Discontinued operations Profit for the year
9,000,000 (3,000,000) 6,000,000 (2,800,000) (700,000) (500,000) 2,000,000 (700,000) 1,300,000
11. Solution: Estimated annual profit before tax Less: Operating loss carryforward Total Multiply by: Estimated annual income tax expense Divide by: Estimated annual profit before tax Weighted average income tax rate
1,200,000 (300,000) 900,000 30% 270,000 1,200,000 22.50%
Profit before tax - 1st quarter Multiply by: Weighted ave. tax rate Income tax expense
350,000 22.50% 78,750
PROBLEM 45-5: MULTIPLE CHOICE – COMPUTATIONAL 1. B 70,000 loss recognized immediately; (100,000 x ¼) = 25,000 insurance expense allocated to the quarter 2. C Solution: Depreciation expense (60,000 x 6/12) Salaries expense - bonus (120,000 x 6/12) Total expense for the semi-annual period 3. B Solution: Property tax (180,000 x 1/4) Costs benefitting the remainder of the year (300,000 x 1/3) Total expense for the 2nd quarter 3
30,000 60,000 90,000
45,000 100,000 145,000
4. C 5. B (-20,000 - 30,000 + 90,000) = 40,000 6. C (200,000 x 25%) = 50,000 7. C – The entire write-down of 900,000 is recognized in the 2nd quarter. 8. D 9. C 10. B Solution: Estimated annual profit before tax Less: Operating loss carryforward (120K / 30%) Total Multiply by: Estimated annual income tax expense Divide by: Estimated annual profit before tax Weighted average income tax rate
Profits before taxes Multiply by: Weighted ave. tax rate Income tax expense
1,200,000 (400,000) 800,000 30% 240,000 1,200,000 20.00%
1st Qtr. 350,000
2nd Qtr. 200,000
3rd Qtr. 400,000
20.00%
20.00%
20.00%
70,000
40,000
80,000
4
PROBLEM 45-6: EXERCISES – COMPUTATIONAL 1.
Solution:
Revenue Cost of goods sold Gross profit Other operating expenses Property tax expense Impairment loss Loss
9,000,000 (5,000,000) 4,000,000 (2,800,000) (250,000) (600,000) 350,000
The write-up is not recognized because there are no write-downs in the past.
2.
Solution:
Revenue Cost of goods sold Gross profit Other operating expenses Insurance expense (60K x 3/24) Commission expense Unrealized gain (1.45M - 1.5M) Profit from continuing operations Discontinued operations (2.8M - 3M) + 800K Profit for the year Other comprehensive income: Comprehensive income
3.
9,000,000 (5,000,000) 4,000,000 (2,800,000) (7,500) (80,000) (50,000) 1,062,500 (1,000,000) 62,500 62,500
Solution: 9,000,000 (5,000,000) 4,000,000 (2,800,000)
Revenue Cost of goods sold Gross profit Other operating expenses Employee benefits Depreciation expense (see solution below) Interest income (1.2M x 10% x 3/12)
(450,000) (45,000) 30,000
Profit for the year
735,000
By trial and error, the depreciation method used by Puppy is determined to be the SYD method. Trial and error: Historical cost (squeeze)
1,000,000
5
Accumulated depreciation Carrying amount - 1/1/x1
(540,000) 460,000
Historical cost Residual value Depreciable amount
1,000,000 (100,000) 900,000
Depreciation - 1st yr. (900K x 5/15) Depreciation - 2nd yr. (900K x 4/15) Accumulated depreciation - 1/1/x1
300,000 240,000 540,000
Depreciation - 20x1 (900K x 3/15) Multiply by: Depreciation - 1st qtr.
180,000 3/12 45,000
4. Solution: Estimated annual profit before tax Less: Operating loss carryforward (300K / 30%) Total Multiply by: Estimated annual income tax expense Divide by: Estimated annual profit before tax Weighted average income tax rate Profit before tax - 1st quarter Multiply by: Weighted ave. tax rate Income tax expense
1,200,000 (1,000,000) 200,000 30% 60,000 1,200,000 5.00% 350,000 5.00% 17,500
5. Solution: Estimated annual profit before tax Less: Operating loss carryforward Total Multiply by: Estimated annual income tax expense Divide by: Estimated annual profit before tax Weighted average income tax rate Profit before tax - 1st quarter Multiply by: Weighted ave. tax rate
800,000 (100,000) 700,000 30% 210,000 800,000 26.25% 280,000 26.25%
6
Income tax expense
73,500
7
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