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Interim reports

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A few years ago, a publishing company in the fourth quarter had a net profit figure that exceeded sales for that quarter. Such a situation as this suggests that some difficult accounting issues are involved in interim reporting.

Instructions:

(a) What are the major accounting problems related to interim reports?

(b) What problem exists with income taxes in interim reports and how does APB Opinion No. 28 recommend that taxes should be reported? What does FASB Interpretation No. 18 require?

(c) Many academicians have attempted to predict the year's net income after the first quarter's income is reported. These attempts are generally unsuccessful, no matter how sophisticated the prediction model. What might be the reason for this inability to predict?

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This posting answers the student's questions on accounting issues related to interim reporting.

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(a) The major accounting issues related to interim reporting are the treatment of (1)extraordinary items, (2) annually determined items such as income taxes, pension costs, executive compensation based on annual net income, and (3) the problem of seasonality.

(b) The basic question with income taxes is whether in the preparation of interim income statements the provision for taxes should reflect the anticipated ...

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