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SOL.MAN. Chapter 9 Notes
Accountancy (National College of Business and Arts)
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Chapter 9
Interim Financial Reporting
PROBLEM 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 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
9,000,000
(5,000,000)
4,000,000
(2,800,000)
(600,000)
60,000
660,000
(110,000)
550,000
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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
7,000,000
(3,000,000)
4,000,000
(2,800,000)
(300,000)
(60,000)
(15,000)
825,000
Other comprehensive income:
Revaluation increase (4.4M - 3.8M)
Comprehensive income
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
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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:
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)
Profit for the year
9,000,000
(5,000,000)
4,000,000
(2,800,000)
(450,000)
(45,000)
30,000
735,000
By trial and error, the depreciation method used by Puppy is determined to be the SYD method.
Trial and error:
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Historical cost (squeeze)
Accumulated depreciation
Carrying amount - 1/1/x1
1,000,000
(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
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
1,200,000
(1,000,000
)
200,000
30%
60,000
1,200,000
5.00%
350,000
5.00%
17,500
800,000
(100,000)
700,000
30%
210,000
800,000
26.25%
280,000
26.25%
73,500
PROBLEM 4: MULTIPLE CHOICE – THEORY
1
6. C
D
.
2
7. B
C
.
8. C
3 A
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.
4
.
5
.
D
D
9.
C
10.
A
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)
30,000
Salaries expense - bonus (120,000 x 6/12)
60,000
Total expense for the semi-annual period
90,000
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
45,000
100,000
145,00
0
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 2 quarter.
nd
8. D
9. C
10. B
Solution:
Estimated annual profit before tax
Less: Operating loss carryforward (120K /
30%)
Total
1,200,000
(400,000)
800,000
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30%
240,000
1,200,000
20.00%
Multiply by:
Estimated annual income tax expense
Divide by: Estimated annual profit before tax
Weighted average income tax rate
1st Qtr.
Profits before taxes
Multiply by: Weighted ave. tax rate
Income tax expense
350,00
0
20.00%
70,000
2nd
Qtr.
3rd
Qtr.
200,000
400,000
20.00%
40,000
20.00%
80,000
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