Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
46. Millstone Company's first-quarter 20X3, pretax income is $25,000. The company anticipates an annual tax
credit of $5,500. Millstone is projecting income for the remaining three quarters of $95,000. For the second
quarter of 20X4, Millstone reports $55,000 of pretax income with a projected pre-tax income for the remainder
of the year of $65,000. Millstone does not have any permanent differences between taxable income and
financial income.
In the second quarter, Millstone decided to change their depreciation method used for financial reporting
purposes. The change in depreciation methods has the following effect on the calculation and projection of
income for Millstone:
Actual Income
Projected Remainder
Qtr1
20,000
85,000
Qtr2
55,000
65,000
The effect of the change on prior years is a decrease to retained earnings of $30,000.
The current tax schedule is:
$1-$100,000
15%
$100,001-200,000
22%
$200,001-460,000
28%
$460,001 and above
30%
Required:
Calculate the first and second quarter interim tax expenses on continuing income.
47. Corriveau Industries decided to switch from an accelerated depreciation method to a straight-line method in
the second quarter of 20X1. This is classified as a cumulative effect of a change in accounting principle. The
first-quarter, pretax income reported was $30,000, and projected pretax income for 20X1 was $90,000. If
Corriveau had used straight-line depreciation for the quarter, pretax income would have been $35,000 and
projected pretax income for 20X1 would have been $110,000. The cumulative effect on prior years from the
change is a $50,000 increase in retained earnings. The second-quarter income using straight-line depreciation is
$20,000, and the expected annual earnings continue to be $110,000. Assume that Corriveau is subject to a flat
25% statutory tax rate for 20X1. Corriveau is expecting $5,000 of tax-free income during the third and fourth
quarters of 20X1.
Required:
For all categories of income, calculate the interim tax expense for the first quarter, first quarter restated, and
second quarter.
48. Futura Corporation reported pretax net income of $30,000 in the first quarter of 20X1. The company
anticipated pretax net income of $90,000 for the year. During the second quarter, after issuing the first-quarter
interim statement, Futura decided to discontinue its electronics division and adopted a formal plan for its
disposal.
During the first quarter, the electronics division reported a pretax loss of $70,000 and estimated a $270,000
operating loss for the year. During the second quarter, the division experienced an operating loss of $35,000
prior to the measurement date and $8,000 in the remainder of that quarter. The anticipated loss on the disposal
of that division's assets was $40,000.
Futura had a flat 25% tax rate for 20X1. The firm is expecting a $5,000 tax credit attributed to operations
outside of the electronic division. Second-quarter pretax income for the non-electronics operations was $40,000.
As of the end of the second quarter, annual pretax income of $225,000 was anticipated for continuing
operations.
Required:
In good form, prepare a schedule showing the income (loss) and tax expense (benefit) determination for the first
quarter, the restated first quarter, and the second quarter.
49. Consider the following:
Case A
Income (loss) for quarters 1 through 4 is ($50,000), $30,000, $40,000, and $40,000, respectively. Future projected income
for the year is uncertain at the end of quarters 1 and 2. Annual income at the end of quarter 3 is estimated to be $20,000.
No carryback benefit exists, and any future annual benefit is uncertain.
Case B
Assume the same facts as in Case A. However, at the end of quarters 1 through 3, annual income is estimated to be
$40,000.
Case C
Quarterly income (loss) levels were $15,000, ($35,000), ($75,000), and $25,000. A yearly operating loss of $70,000 was
anticipated throughout the year. Prior years' income of $28,000 is available for carryback. The same tax rates were
relevant to the carryback period
Required:
For cases A through C, complete the schedule that follows: Assume that the statutory tax rate is 15% on the first $50,000 of income, 25% on the next
$25,000, and 30% on income in excess of $75,000.
Income (Loss)
Tax
Tax Expense
(Benefit)
Case
Quarter
Current
Year to Date
Rate
Year to Date
Current
1
2
3
4
50. East Company, a highly diversified corporation, reports the results of operations quarterly. At the beginning
of the third quarter, management decided to discontinue its recreational division. At this time, a formal plan was
authorized, calling for disposal by year end. Results for the current year, excluding taxes, are as follows:
Quarter
Continuing
Operations
Discontinued
Segment
First
$33,000
Second
40,200
Third
62,000
$(6,500)
Fourth
71,500
1,200
The following additional information was provided:
a.
The first two quarters include results of operations of the discontinued segment. The segment reported first and second quarter pretax
losses of $8,000 and $12,000, respectively.
b.
The estimated annual income tax rate in the first and second quarters was 35%. Because of the decision to discontinue, the revised annual
effective tax rate was determined to be 40%.
Required:
For each quarter, present the results of operations and the related tax expense or tax benefit. Where applicable, include the original and restated
amounts in the presentation.
51. Adam Enterprise includes seven industry segments. Operating profits (losses) relating to those segments are:
Segment
Operating
Profit (Loss)
1
$ 100,000
2
500,000
3
400,000
4
(295,000)
5
(600,000)
6
(100,000)
7
(105,000)
Required:
Based only on the above operating profit(loss) information, which of Adam's segments would be reported separately?
52. Santas Corporation is a diversified firm with operations in the United States, Canada, Chile, Spain, and
France, each of which qualifies as a geographic segment. Data with respect to those segments follows:
Revenues (in thousands)
Unaffiliated
Intersegment
Profit
Segments:
Customers
Sales
Total
(Loss)
Assets
US
$ 800
$ 0
$ 800
$200
$ 300
Canada
450
150
600
150
200
Chile
600
60
660
240
350
Spain
280
0
280
(30)
180
France
300
100
400
(110)
90
$2,430
$310
$2,740
$ 450
$1,120
Corporate-level
700
0
700
100
1,000
Total
$3,130
$310
$3,440
$ 550
$2,120
Required:
Determine which of the Santas segments would be reportable segments, and explain why.
53. Information about the seven segments of the Kenny Corporation is presented below. Determine which of the
segments are reportable and why.
General and
Revenue from
Administrative
Total
Segment
All Sources
Cost of Sales
Expenses
Assets
1
$17,450,000
$15,200,000
$ 4,500,000
$ 55,000,000
2
25,200,000
20,000,000
4,000,000
80,000,000
3
9,150,000
7,000,000
1,500,000
28,250,000
4
780,000
300,000
100,000
4,750,000
5
11,500,000
8,900,000
4,250,000
25,500,000
6
6,800,000
3,400,000
2,000,000
12,000,000
7
2,100,000
1,000,000
900,000
10,000,000
Total
$72,980,000
$55,800,000
$17,250,000
$215,500,000
54. Egan Company, a publicly-traded company, divides its operations into several operating
segments. Determine which of the following segments are reportable and reconcile the reportable segments to
the consolidated revenues and profits.
External Revenues
Intersegment Revenues
Expenses
Assets
Travel agency
$ 621,000
$ 700,000
$ 1,597,000
$ 1,540,000
Hotels
4,543,000
644,000
2,315,000
7,787,000
Amusement parks
2,400,000
220,000
1,570,000
1,940,000
Theater
2,180,000
116,000
2,640,000
1,441,000
Pro soccer team
700,000
-
898,000
1,340,000
Corporate-level items
100,000
-
250,000
200,000
Total
$10,544,000
$1,680,000
$9,270,000
$14,248,000
55. Explain the difference in the independent and integral viewpoints of accounting for interim periods. Which
method best describes the accepted accounting practice for interim financial reporting?
56. The management of Trident, Inc. is trying to determine if three of the company's nonreportable segments
should be combined into one single segment for reporting purposes. In what five ways must these segments be
similar in order to be reported as one?
57. Discuss the criteria emphasized in the “management approach” that is used to define operating segments.
58. The following lists account titles found on the books of Icell Corporation:
a.
Research and Development
b.
Inventory
c.
Annual Bonuses
d.
Unfavorable Materials Usage Variance
Required:
Discuss how each of these items is accounted for in interim financial statements.
59. For purposes of interim reporting, US-GAAP permits certain modifications to year-end inventory rules.
Required:
Comment on the acceptability of the following independent situations concerning inventory valuation for an
interim period:
a.
Management believes that since its firm does not have a perpetual inventory system, it would be too costly to take a physical inventory.
Consequently, management has suggested to the accounting department that they estimate ending inventory.
b.
Since the LIFO inventory base was liquidated in the first quarter, management has recommended that the accounting department switch to
FIFO valuation of inventory.
c.
Since the first quarter is a slow period for a manufacturing firm, management has suggested that the unfavorable volume variances from
the firm's standard cost system be deferred until year end.
60. Stidham Company is a large international company with diversified operating segments. These segments
include the following:
61. In addition to disclosures about reportable segments, companies are required to provide enterprise-wide
disclosures. Describe the information included in enterprise-wide disclosures.
If information regarding product groups and/or geographic areas is not provided as part of the segmental
disclosures, such information must be provided on an enterprise-wide basis as an additional disclosure if
practical. The disclosures are required even if there is only one reportable segment. The enterprise is required
to:
