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Corporate Quarterly Statements of Income

The unaudited quarterly statements of income issued by many corporations to their stockholders are usually prepared on the same basis as annual statements, their statement for each quarter reflecting the transactions of that quarter.

Required:
a. Why do problems arise in using such quarterly statements to predict the income (before extraordinary items) for the year? Explain.

b. Discuss the ways in which quarterly income can be affected by the behavior of the costs recorded in a repairs and maintenance of factory machinery account.

c. Do such quarterly statements give management opportunities to manipulate the results of operations for a quarter? If so, explain or give an example.

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Though, the unaudited quarterly statements of income issued by many corporations to their stockholders are usually prepared on the same basis as annual statements, their statement for each quarter reflecting the transactions of that quarter, some of the generally accepted accounting principles that are strictly followed in the preparation of the annual financial statements have to be ignored in the preparation of the quarterly report or other periodic report. This is a classic example of the trade off between financial statements' reliability and timeliness. In other words, annual financial statements are more reliable, but less timely than quarterly financial statements.

Problems arise in using such quarterly statements to predict the income (before extraordinary items) for the year ...

Solution Summary

This solution discusses corporate quarterly statements of income.

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