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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.

b) Rockford Company is planning to report one-fourth of its pension expense each quarter.

Step by step solution

01

Meaning of Financial Report

Financial reporting is the publication of an organization's financial resultsto its stakeholders and the general public. The controller, who may be aided by the investor relations officer if the company is publicly owned, is responsible for this reporting.

02

Explaining whether it is acceptable under GAAP or not

Pension expenses are more easily traced over time than they are with the purchase of a commodity or service. Companies are urged to predict those factors that generally result in year-end changes on a quarterly basis. As a result, allocating this expenditure to each of the four intermediate periods is appropriate.

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