CHAPTER 12
UNDERSTANDING THE ISSUES
1. Viewing an interim period as an integral
part of a larger annual period has several
benefits. The allocation of expense under
this viewpoint provides information that al-
2. A number of factors are necessary in order
to determine the estimated effective annual
tax rate. First of all, the rate should reflect
conditions to be experienced for the entire
year. Therefore, in addition to year-to-date
pretax income/loss, such amounts must be
projected for the balance of the year. Statu-
tory tax rates are applied to these annual
amounts after considering the presence of
possible annual permanent differences
tax credit carrybacks and carryforwards.
3. Several factors may explain this situation. If
the third-quarter loss were greater than the
to the loss may not be recognized. How-
ever, if this were the case, one would
consider any known pretax income in the
carryback period and any “more likely than
tax income in the carryforward period.
4. There are a number of reasons why the
total operating profit of the reportable seg-
ments does not normally equal the consoli-
dated operating profit. First of all, not all
operating segments are reportable and yet
such amounts are included in consolidated
amounts. Second, there are a number of
intersegment transactions whose effect
luating segment performance and/or
because allocation is not possible on a rea-
sonable basis. Finally, the accounting