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An inventory loss from a permanent market decline of $360,000 occurred in May 1989. Cox Co. appropriately recorded this loss in May 1989 after its March 31, 1989 quarterly report was issued. What amount of inventory loss should be reported in Cox's quarterly income statement for the three months ended June 30, 1989?
Answer : D
Choice 'd' is correct. $360,000 inventory loss reported for the quarter ended 6-30-89.
Rule: Inventory losses from 'permanent market declines' are recognized in the interim period, incurred and later, if they 'turn-around,' are recognized as gains in a subsequent interim period only to the extent of previously reported losses.
Rule: 'Temporary' market declines need not be recognized at interim when a 'turn-around' can reasonably be expected to occur before the end of the fiscal year.
Facts: This $360,000 inventory decline is permanent and the entire loss would be recognized in the quarter interim period incurred (6-30-89).
Advertising costs may be accrued or deferred to provide an appropriate expense in each period for:
Answer : B
Choice 'b' is correct. Yes - Yes.
Advertising costs may be accrued or deferred to provide an appropriate expense in each period for both 'interim' and 'year-end' financial reporting.
A planned volume variance in the first quarter, which is expected to be absorbed by the end of the fiscal period, ordinarily should be deferred at the end of the first quarter if it is:
Answer : D
Choice 'd' is correct. Yes - Yes.
Rule: Volume variances that are planned or expected to be absorbed by the end of the year should be deferred at interim whether favorable or unfavorable.
Kell Corp.'s $95,000 net income for the quarter ended September 30, 1990, included the following aftertax items:
* A $60,000 extraordinary gain, realized on April 30, 1990, was allocated equally to the second, third, and fourth quarters of 1990.
* A $16,000 cumulative-effect loss resulting from a change in inventory valuation method was recognized on August 2, 1990.
In addition, Kell paid $48,000 on February 1, 1990, for 1990 calendar-year property taxes. Of this amount, $12,000 was allocated to the third quarter of 1990.
For the quarter ended September 30, 1990, Kell should report net income of:
Answer : A
Choice 'a' is correct. $91,000 net income for the third quarter ended 9-30-90.
Rules: The entire amount of an 'extraordinary' item should be reported during the period incurred.
A 'cumulative effect' type accounting change is not included in the net income of the period of change; instead, the beginning of the year retained earnings is restated.
Expenses, which benefit more than one interim period, such as property taxes, are allocated among the periods benefited.
On June 30, 1991, Mill Corp. incurred a $100,000 net loss from disposal of a component of a business. Also, on June 30, 1991, Mill paid $40,000 for property taxes assessed for the calendar year 1991. What amount of the foregoing items should be included in the determination of Mill's net income or loss for the six-month interim period ended June 30, 1991?
Answer : B
Choice 'b' is correct. $120,000 expense included in the determination of net income or loss for the sixmonth interim period ended June 30, 1991.
