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Chapter 24: 13Q (page 1445)
鈥淭he financial statements of a company are management鈥檚, not the accountant鈥檚.鈥� Discuss the implications of this statement.
Management can display the information only if the auditor does not object to it.
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The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period. In general, the results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year. The Board has concluded, however, that certain accounting principles and practices followed for annual reporting purposes may require modification at interim reporting dates so that the reported results for the interim period may better relate to the results of operations for the annual period.
Instructions
The following six independent cases present how accounting facts might be reported on an individual company鈥檚 interim financial reports. For each of these cases, state whether the method proposed to be used for interim reporting would be acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.
f) LaBrava Company was reasonably certain it would have an employee strike in the third quarter. As a result, it shipped heavily during the second quarter but plans to defer the recognition of the sales in excess of the normal sales volume. The deferred sales will be recognized as sales in the third quarter when the strike is in progress. LaBrava Company management thinks this is more representative of normal second- and third-quarter operations.
Okay. Last fall, someone with a long memory and an even longer arm reached into that bureau drawer and came out with a moldy cheese sandwich and the equally moldy notion of corporate forecasts. We tried to find out what happened to the cheese sandwich鈥攂ut, rats!, even recourse to the Freedom of Information Act didn鈥檛 help. However, the forecast proposal was dusted off, polished up and found quite serviceable. The SEC, indeed, lost no time in running it up the old flagpole鈥攂ut no one was very eager to salute. Even after some of the more objectionable features鈥攃ompulsory corrections and detailed explanations of why the estimates went awry鈥攚ere peeled off the original proposal.
Seemingly, despite the Commission鈥檚 smiles and sweet talk, those craven corporations were still afraid that an honest mistake would lead them down the primrose path to consent decrees and class action suits. To lay to rest such qualms, the Commission last week approved a 鈥淪afe Harbor鈥� rule that, providing the forecasts were made on a reasonable basis and in good faith, protected corporations from litigation should the projections prove wide of the mark (as only about 99% are apt to do).
Instructions
Foley Corporation has seven industry segments with total revenues as follows.
Penley \(600 Cheng \)225
Konami 650 Takuhi 200
KSC 250 Molina 700
Red Moon 275
Based only on the revenues test, which industry segments are reportable?
The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period. In general, the results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year. The Board has concluded, however, that certain accounting principles and practices followed for annual reporting purposes may require modification at interim reporting dates so that the reported results for the interim period may better relate to the results of operations for the annual period.
Instructions
The following six independent cases present how accounting facts might be reported on an individual company鈥檚 interim financial reports. For each of these cases, state whether the method proposed to be used for interim reporting would be acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.
b) Rockford Company is planning to report one-fourth of its pension expense each quarter.
Carlton Company is involved in four separate industries. The following information is available for each of the four industries.
Operating Segment | Total Revenue | Operating Profit (Loss) | Identifiable Assets |
W | \( 60,000 | 15,000 | \)167,000 |
X | 10,000 | 3,000 | 83,000 |
Y | 23,000 | (2,000) | 21,000 |
Z | 9,000 | 1,000 | 19,000 |
\(102,000 | \)17,000 | $290,000 |
Instructions
Determine which of the operating segments are reportable based on the:
b) Operating profit (loss) test.
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