Following are seven independent cases on how accounting facts might be reported on an individual company's interim financial reports.
1. Bean Company was reasonably certain it would have an employee strike in the third quarter. As a result, the company shipped heavily during the second quarter but plans to defer the recognition of the sales in excess of the normal sales volume until the third quarter when the strike is in progress. Bean management thinks this is more nearly representative of normal second- and third-quarter operations.
2. Green Inc. takes a physical inventory at year-end for annual financial statement purposes.
Inventory and cost of sales reported in the interim quarterly statements are based on estimated gross profit rates because a physical inventory would result in a cessation of operations.
3. ER Company is planning to report one-fourth of its annual pension expense each quarter.
4. Fair Corporation wrote down inventory to reflect the lower of cost or market in the first quarter of 20X1. At year-end, the market price exceeds the original acquisition cost of this inventory.
Consequently, management plans to write the inventory back up to its original cost as a yearend adjustment.
5. Carson 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.
6. Ring Corporation has estimated its annual audit fee. Management plans to prorate this expense equally over all four quarters.
7. Mega Corporation made a change in the depreciation of its warehouse building during the third quarter of 20X1. The change was from the accelerated method to the straight line method to better match the depreciation expense to the current levels of usage of the warehouse. The company plans to use the cumulative effect approach to present the effects of the change as of the beginning of the third quarter.

For each of the seven cases, state whether the method proposed for interim reporting is acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.

  • CreatedMay 23, 2014
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