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. IMMEDIATELY
2. IMMEDIATELY
3. IMMEDIATELY
4. IMMEDIATELY
5. SPREAD OUT
6. SPREAD OUT
7. IMMEDIATELY
8. SPREAD OUT
9. IMMEDIATELY
10. IMMEDIATELY
11. IMMEDIATELY
12. IMMEDIATELY
13. SPREAD OUT
14. SPREAD OUT
15. IMMEDIATELY

PROBLEM 45-3: MULTIPLE CHOICE – THEORY

1. D 6. C
2. C 7. B
3. A 8. C
4. D 9. C
5. D 10. A

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PROBLEM 45-4: THEORY & COMPUTATIONAL
1. D

2. A

3. B

4. B

5. B

6. C

7. A

8. Solution:

Revenue 9,000,000
Cost of goods sold (5,000,000)
Gross profit 4,000,000
Other operating expenses (2,800,000)
Loss on inventory write-down (2.2M – 2.8M) (600,000)
Interest income (2M x 12% x 3/12) 60,000
Profit 660,000
Other comprehensive income:
Unrealized loss on FVOCI [450K – (500K + 60K)] (110,000)
Comprehensive income 550,000

9. Solution:
Revenue 7,000,000
Cost of goods sold (3,000,000)
Gross profit 4,000,000
Other operating expenses (2,800,000)
Property tax expense (1.2M x 1/4) (300,000)
Depreciation expense [(1.2M / 5) x 3/12] (60,000)
Insurance expense (15,000)
Profit 825,000
Other comprehensive income:
Revaluation increase (4.4M - 3.8M) 600,000
Comprehensive income 1,425,000

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10. Solution:

Revenue 9,000,000
Cost of goods sold (3,000,000)
Gross profit 6,000,000
Other operating expenses (2,800,000)
Salaries expense (2.8M x 3/12) (700,000)
Impairment loss (500,000)
Profit from continuing operations 2,000,000
Discontinued operations (700,000)
Profit for the year 1,300,000

11. Solution:

Estimated annual profit before tax 1,200,000

Less: Operating loss carryforward (300,000)
Total 900,000
Multiply by: 30%
Estimated annual income tax expense 270,000
Divide by: Estimated annual profit before tax 1,200,000
Weighted average income tax rate 22.50%

Profit before tax - 1st quarter 350,000

Multiply by: Weighted ave. tax rate 22.50%
Income tax expense 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) 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) 45,000
Costs benefitting the remainder of the year (300,000 x 1/3) 100,000
Total expense for the 2nd quarter 145,000

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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 1,200,000
Less: Operating loss carryforward (120K / 30%) (400,000)
Total 800,000
Multiply by: 30%
Estimated annual income tax expense 240,000
Divide by: Estimated annual profit before tax 1,200,000
Weighted average income tax rate 20.00%

1st Qtr. 2nd Qtr. 3rd Qtr.

Profits before taxes 350,000 200,000 400,000
Multiply by: Weighted ave. tax
20.00% 20.00% 20.00%
rate
Income tax expense 70,000 40,000 80,000

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PROBLEM 45-6: EXERCISES – COMPUTATIONAL

1. Solution:

Revenue 9,000,000
Cost of goods sold (5,000,000)
Gross profit 4,000,000
Other operating expenses (2,800,000)
Property tax expense (250,000)
Impairment loss (600,000)
Loss 350,000

The write-up is not recognized because there are no write-downs in the past.

2. Solution:

Revenue 9,000,000
Cost of goods sold (5,000,000)
Gross profit 4,000,000
Other operating expenses (2,800,000)
Insurance expense (60K x 3/24) (7,500)
Commission expense (80,000)
Unrealized gain (1.45M - 1.5M) (50,000)
Profit from continuing operations 1,062,500
Discontinued operations (2.8M - 3M) + 800K (1,000,000)
Profit for the year 62,500
Other comprehensive income: -
Comprehensive income 62,500

3. Solution:

Revenue 9,000,000
Cost of goods sold (5,000,000)
Gross profit 4,000,000
Other operating expenses (2,800,000)
Employee benefits (450,000)
Depreciation expense (see solution below) (45,000)
Interest income (1.2M x 10% x 3/12) 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

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 Accumulated depreciation (540,000)
Carrying amount - 1/1/x1 460,000

Historical cost 1,000,000

Residual value (100,000)
Depreciable amount 900,000

Depreciation - 1st yr. (900K x 5/15) 300,000

Depreciation - 2nd yr. (900K x 4/15) 240,000
Accumulated depreciation - 1/1/x1 540,000

Depreciation - 20x1 (900K x 3/15) 180,000

Multiply by: 3/12
Depreciation - 1st qtr. 45,000

4. Solution:
Estimated annual profit before tax 1,200,000
Less: Operating loss carryforward (300K / 30%) (1,000,000)
Total 200,000
Multiply by: 30%
Estimated annual income tax expense 60,000
Divide by: Estimated annual profit before tax 1,200,000
Weighted average income tax rate 5.00%

Profit before tax - 1st quarter 350,000

Multiply by: Weighted ave. tax rate 5.00%
Income tax expense 17,500

5. Solution:
Estimated annual profit before tax 800,000
Less: Operating loss carryforward (100,000)
Total 700,000
Multiply by: 30%
Estimated annual income tax expense 210,000
Divide by: Estimated annual profit before tax 800,000
Weighted average income tax rate 26.25%

Profit before tax - 1st quarter 280,000

Multiply by: Weighted ave. tax rate 26.25%

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Income tax expense 73,500