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Intermediate Accounting (Kieso)
Found in: Page 1456

Short Answer

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’s 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.

d) Gansner 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 the gain in each of the remaining quarters.

It is not acceptable under GAAP.

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Step by Step Solution

Meaning of FASB

The standards board is the authority that guides companies to regulate their business and is useful for recording business transactions in the book of accounts. It is also known as Financial Accounting Standard Board.

Explaining whether it is acceptable under GAAP or not

If gains on the sale of investments happened at the end of the year, they would not be delayed. As a result, they should not be delayed to future intermediate periods and should instead be reported in the quarter in which the gain occurred.

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