INTERIM FINANCIAL REPORTING

MULTIPLE CHOICE – COMPUTATIONAL

1. Farr Corp. had the following transactions during the quarter ended March 31, 20x7:
Loss from rare earthquake ₱70,000
Payment of the fire insurance premium for calendar year 20x7 100,000

What amount should be included in Farr’s income statement for the quarter ended March 31, 20x7?
Casualty loss Insurance expense
a. 70,000 100,000
b. 70,000 25,000
c. 17,500 25,000
d. 0 100,000
Solution:
Payment of the fire insurance premium for calendar year 20x7 100,000
Multiply by: ¼
Insurance expense 25,000

2. Vilo Corp. has estimated that total depreciation expense for the year ending December 31, 20x6, will amount to
₱60,000, and that 20x6 year-end bonuses to employees will total ₱120,000. In Vilo’s interim income
statement for the six months ended June 30, 20x6, what is the total amount of expense relating to these
two terms that should be reported?
a. 0 b. 30,000 c. 90,000 d. 180,000
Solution:
Depreciation expense (60,000 × 6/12mths.) 30,000
Employee bonuses (120,000 × 6/12mths.) 60,000
Total expense, Semi-annual period 90,000

3. On March 15, 20x4, Rex Company paid property taxes of ₱180,000 on its factory building for calendar
year 20x4. On April 1, 20x4, Rex incurred costs of ₱300,000 that are expected to benefit the remainder of
the calendar year. What total amount of these expenses should be included in Rex’s quarterly income
statement for the three months ended June 30, 20x4?
a. 75,000 b. 145,000 c. 195,000 d. 345,000
Solution:
Property taxes (180,000 × 1/4qtr.) 45,000
Costs expected to benefit the remainder of the calendar year [300,000 × 100,000
1/3qtr. (remaining quarters)]
Total expenses for the three months ended June 30, 20x4 (2 nd Quarter) 145,000
4. Wilson Corp. experienced a ₱50,000 decline in the value of its inventory in the first quarter of its fiscal
year. Wilson had expected this decline to reverse in the third quarter, and in fact, the third quarter recovery
exceeded the previous decline by ₱10,000. Wilson’s inventory did not experience any other declines in
value during the fiscal year. What amounts of loss and/or gain should Wilson report in its interim financial
statements for the first and third quarters?
First quarter Third quarter
a. 0 0
b. 0 10,000 gain
c. 50,000 loss 50,000 gain
d. 50,000 loss 60,000 gain
₱50,000 decline or write-down in inventory in the 1 st quarter, Wilson expected that the
decline/write-down will reverse in the 3 rd quarter (₱50,000).

5. On February 2, Flint Corp’s Board of Directors committed to plan to sell its frozen food component and to sell the
component’s assets on the open market as soon as possible. As a results, the component’s operations and cash
flows will be eliminated from the entity’s operations and the entity will have no significant continuing post-disposal
involvement in the component’s operations. The division reported net operating losses of ₱20,000 in January and
₱30,000 in February. On February 26, sale of the division’s assets resulted in a gain of ₱90,000. What
amount of gain from disposal of a component should Flint reorganize in its income statement for the three
months ended March 31?
a. 0 b. 40,000 c. 60,000 d. 90,000
Solution:
Gain on sale of the division’s asset 90,000
Less: Operating losses
January (20,000)
February (30,000) (50,000)
Gain from disposal of a component, 1st Quarter 40,000

6. During the first quarter of 20x4, Tech Co. had income before taxes of ₱200,000, and its effective income
tax rate was 15%. Tech’s 20x3 effective annual income tax rate was 30%, but Tech expects its 20x4
weighted average annual income tax rate to be 25%. In its first quarter interim income statement, what
amount of income tax expense should Tech report?
a. 0 b. 30,000 c. 50,000 d. 60,000
Solution:
Income before taxes 200,000
Multiply by: Weighted annual income tax rate 25%
Income tax expense, 1st Quarter 50,000

7. A inventory loss from market decline of ₱900,000 occurred in April 2002. CD Company recorded this
loss in April 2002 after its March 31, 2002 quarterly report was issued. None of this loss was recovered by
the end of the year. How should this loss be reflected in the quarterly income statements of CD Company?
Three months ended (2002):
March 31 June 30September 30 December 31
a. 0 0 0 900,000
b. 0 300,000 300,000 300,000
c. 0 900,000 0 0
d. 225,000 225,000 225,000 225,000

₱900,000 write-down occurred in April 2002 is recognized in the 2nd quarter.

8. Eureka Corp. experienced a ₱50,000 decline in the fair value of its held for trading securities in the first
quarter of its fiscal year. Eureka had expected this decline to reverse in the third quarter, and in fact, the
third quarter recovery exceeded the previous decline by ₱10,000. Eureka’s held for trading securities did
not experience any other declines in value during the fiscal year. What amounts of loss and/or gain should
Eureka report in its interim financial statements for the first and third quarters?
First quarter Third quarter
a. 0 0
b. 0 10,000 gain
c. 50,000 loss 50,000 gain
d. 50,000 loss 60,000 gain
1st Quarter - ₱50,000 write-down in the fair value of trading securities in the 1 st quarter.
3rd Quarter - ₱50,000 + ₱10,000 = ₱60,000 gain.
9. At the start of the year, Ancing Corp. classified its equipment with carrying amount of ₱1,000,000 as
noncurrent asset held for sale. All the conditions in PFRS 5 are met. The fair value of the equipment is
₱1,000,000 and the costs to sell are ₱50,000. Ancing had expected this decline to reverse in the third
quarter, and in fact, the third quarter recovery exceeded the previous decline by ₱10,000. Ancing’s
noncurrent asset held for sale did not experience any other declines in value during the fiscal year. What
amounts of loss and/or gain should Ancing report in its interim financial statements for the first and third
quarters?
First quarter Third quarter
a. 0 0
b. 0 10,000 gain
c. 50,000 loss 50,000 gain
d. 50,000 loss 60,000 gain

10. On January 1, 20x1, Sunrise Co. has a deferred tax asset of ₱120,000 arising solely from an operating
loss carryforward. Sunrise Co. is subject to an income tax rate of 30%. For the year 20x1, Sunrise expects
to earn profit of ₱1,200,000 before tax and before the loss carryforward. Sunrise Co. earns profit before tax
of ₱350,000, ₱200,000, and ₱400,000, in the first, second and third quarters of 20x1. How much are the
income tax expenses recognized in the interim periods?
1st quarter 2nd quarter 3rd quarter
a. 60,000 40,000 90,000
b. 70,000 40,000 80,000
c. 80,000 50,000 80,000
d. 80,000 50,000 90,000
Solution:
Estimated profit before tax for the year 20x1 1,200,000
Operating loss carryforward (120,000/30%) (400,000)
Total 800,000
Multiply by: Income tax rate 30%
Income tax expense, 20x1 240,000
Divide by: Estimated profit before tax, 20x1 1,200,000
Weighted average annual income tax rate 20%

1st qtr. 2nd qtr. 3rd qtr.

Pretax profit 350,000 200,000 400,000
Multiply by: Ave. tax rate 20% 20% 20%
Income tax expense 70,000 40,000 80,000