Reference no: EM13483270

The following statement is an excerpt from ASC-270-10-45-1-2 (paragraphs 9, and 10 of ABP opinion No. 28, Interim financial 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 need 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 the interim reporting dates so that the reported results for the interim period may better relate to the results of operation for the annual period.

Required:

Listed below are six independent cases on how accounting facts might be reported on an individual company's interim financial reports. For each case, state whether the method proposed to be used for interim reporting would acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.

A. Reed Company wrote inventory down to reflect lower of cost or market in the first quarter of 2005. At year- end the market value exceeds the original acquisition cost of this inventory. Consequently, management plans to write the inventory back up to its original acquisition cost as a yearend adjustment.

B. Greenfield company realized a large gain on the sale of investments at the beginning of the second quarter. The company wants to report one-third of of the gain in each of the remaining quarters.

C. Dole Company has estimated its annual audit fee. They plan to prorate this expense equally over all four quarters.

D. Fur Company was reasonably certain they would have an employee strike in the third quarter. As a result, they shipped heavily during the second quarter but plan to deter 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. Fur Company management thinks this is more nearly representative of normal second and the third quarter operations.

E. Rexx Company takes a physical inventory at year-end for annual financial statement purposes. Inventory and cost of sales reported in the interim quarterly statements mare based on estimated gross profit rates, because a physical inventory would result in a cessation of operations. Rexx Company does have reliable perpetual inventory records.

F. Shelley Company is planning to report one-fourth of its pension expense in each quarter (CMA adapted)