The next area, interim finance reporting.
With interim financial reporting, what it says is, you have your 10k, annual audited
statements, you have your 10q, quarterly review.
With your annual audited statements, what we need to do is, we need to do a 10k every
single year, so we do a 10k, 10k, 10k, and 10k and so on.
We do that every single year.
With a 10q, that's called quarterly review.
So, if you're a public company, 1933, 1934 Act, 34 Act says you have to do a 10k, 10q
and 8k.
A 10k, annual statement, a 10q quarterly review statement.
So what they say is, if you're doing quarterly reviewed statements, how do you know what
to include in the quarter?
Certain things are allocated throughout the entire year.
What does that mean?
It means for the 10q, your quarterly review, basically, we're still using the same gap.
What does that mean?
It means that if you're supposed to capitalize it, you capitalize it.
If you're supposed to expense it, you expense it.
But we're looking at the quarter, quarter, and quarter.
So certain things...here's quarter 1, 2, 3 and 4.
Certain things affect the entire year.
So you quarter, quarter, quarter, quarter.
Some of it affect only that quarter, so you hit it in that quarter.
For example, things that affect the whole year: depreciation.
If you have depreciation expense and if they gave you 100 dollars for the year, you do
25, 25, 25, and 25 each quarter.
So if you're figuring out the interim statements, you take out 25.
Bonuses, same thing.
Quarter because you earned it all year.
Those are things...revenues, cost of goods sold and so on.
Now here's the deal.
What we're looking at, obviously, is timeliness over reliability because this quarter's numbers
aren't necessarily accurate, but you're getting them on time, quarter, because you need a
10q 45 days after the quarter, so it's not completely accurate, but its timeliness.
Top paragraph, last sentence: timeliness is emphasized over reliability, revenues, quarter
amount, and expenses and so on.
Then it says quarter, quarter, and quarter.
So there's certain things that affect each year quarter, quarter, quarter.
Now turn the page.
You'll see the word inventory.
Inventory losses.
What do you do if you have an inventory loss?
It affects only that quarter.
So, listen carefully.
If you have an inventory loss in the 2nd quarter, hit it in that quarter.
If you expect to recover it by the 4th quarter, then don't hit in that quarter because you're
going to recover it.
If by the 4th quarter you have not recovered it, then hit it in the 4th quarter.
One more time.
An inventory loss affects that quarter only.
So, if you have an inventory loss in the 2nd quarter, hit unless you expect to recover
it by the 4th quarter, then don't hit it.
If by the 4th quarter, you've recovered it, great, no deal because you didn't record it
the first place.
If by the 4th quarter you have not recovered it, then recover, then hit in the 4th quarter.
So that's called an inventory loss.
See that on the second page.
Make sure you highlight that.
That's important.
So look at the summary.
To summarize, property taxes, bonuses, depreciation, what do you do?
Quarter, quarter, quarter.
Inventory loss, in that quarter, major expenses, in that quarter, unless it benefits the whole
year, discontinued, in that quarter, extraordinary, in that quarter.
Income tax expense.
Now, for your income taxes, what rate are we going to use?
It says is estimated each quarter using the rate expected for the entire year.
So, they're going to give you the annual rate and a quarterly rate.
Use the annual rate.
Use the rate expected for the what?
Entire year.
Alright?
For example, question number 1, conceptually, interim financial statements can be described
as emphasizing...
What do they emphasize?
Timeliness over reliability.
Why?
Because you get it every quarter even though it might not be completely accurate.
Look at question 3, last sentence first.
What amount of loss or gain should Wilson report in its interim statements for the 1st
and 3rd quarters?
So how much loss or gain?
Wilson Corp. experienced a 50,000 dollar decline in the market value of its inventory in the
1st quarter of the fiscal year.
Wilson has experienced this decline, expected this decline to reverse in the 3rd quarter,
and, in fact, the 3rd quarter recovery exceeded the previous decline by ten.
Wilson's inventory did not experience any other declines in market value during the
year.
What amounts of loss or gain should we report in the 1st and 3rd quarter?
So in the 1st quarter, we have a loss of 50, in the 1st quarter, 50.
We expect to recover it by the 4th quarter, and in fact, we did because it went up by
10, which is the recovery of 60.
So, what do we do?
Alright, so this is 3rd quarter.
Let's see.
If in the 1st quarter we have a loss and you expect to recover it, then what?
Don't hit it.
And in the 4th, 3rd quarter we recovered it.
Don't hit it.
What if you hit by the 10?
Then you're writing inventory up to the higher of cost or market.
You never do that.
So, what's the rule?
If you expect to recover it, don't hit it.
What if they change the question and in the 3rd quarter they hadn't recovered it?
So what do you do?
By the end of the 4th quarter what would you do?
Hit it for how much?
Then you'd hit it for 50 in the 4th.
But let's say they did not expect to recover it, so in the 1st, what would you have done?
If they have a 50,000 on a loss and you don't expect recover it, what do you do?
Hit it.
And then in the 3rd, they recovered it by 60, what you do?
Hit by what?
Only by 50.
Because otherwise you'd be writing it up higher.
But in this question, what's it say?
We had a loss in the 1st quarter, you don't expect to recover it, and you do expect to
recover it.
Don't hit it.
You actually did recover it, don't hit it.
What do you hit in the 1st?
Zero.
3rd?
Zero.
What's the answer?
A. 00.
One more time.
Inventory loss.
If you have an inventory loss, hit in that quarter unless you expect to recover it, then
don't hit it in that quarter.
If you actually do recover it, great.
If you don't recover it, then hit it in the end.