Chapter 9
Interim Financial Reporting
PROBLEM 1: TRUE OR FALSE
1. FALSE
6. FALSE
2.
3.
4.
5.
TRUE
FALSE
TRUE
FALSE
7.
8.
9.
10.
FALSE
TRUE
FALSE
TRUE
PROBLEM 2: FOR CLASSROOM DISCUSSION
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
7,000,000
(3,000,000)
1
9,000,000
(5,000,000)
4,000,000
(2,800,000)
(600,000)
60,000
660,000
(110,000)
550,000
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
4,000,000
(2,800,000)
(300,000)
(60,000)
(15,000)
825,000
600,000
1,425,000
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
Profit before tax - 1st quarter
Multiply by: Weighted ave. tax rate
Income tax expense
1,200,000
(300,000)
900,000
30%
270,000
1,200,000
22.50%
350,000
22.50%
78,750
2
PROBLEM 3: EXERCISES
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
3
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
Income tax expense
800,000
(100,000)
700,000
30%
210,000
800,000
26.25%
280,000
26.25%
73,500
4
PROBLEM 4: MULTIPLE CHOICE – THEORY
6. C
1. D
7. B
2. C
8. C
3. A
9. C
4. D
10. A
5. D
PROBLEM 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
4. C
30,000
60,000
90,000
45,000
100,000
145,000
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%)
5
1,200,000
(400,000)
800,000
30%
240,000
1,200,000
20.00%
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
1st Qtr.
350,000
2nd Qtr.
200,000
3rd Qtr.
400,000
20.00%
20.00%
20.00%
70,000
40,000
80,000
6