In: Accounting
Ivanhoe Corporation, a publicly traded company, is preparing the interim financial data which it will issue to its stockholders and the Securities and Exchange Commission (SEC) at the end of the first quarter of the 2017–2018 fiscal year. Ivanhoe’s financial accounting department has compiled the following summarized revenue and expense data for the first quarter of the year. Sales revenue $56,000,000 Cost of goods sold 35,200,000 Variable selling expenses 870,000 Fixed selling expenses 2,720,000 Included in the fixed selling expenses was the single lump-sum payment of $1,810,000 for television advertisements for the entire year. Ivanhoe Corporation must issue its quarterly financial statements in accordance with generally accepted accounting principles regarding interim financial reporting. Should Ivanhoe report its operating results for the quarter as if the quarter were a separate reporting period in and of itself, or as if the quarter were an integral part of the annual reporting period. . The company report its quarterly results as if each interim period is an integral part of the annual period. State how the sales revenue, cost of goods sold, and fixed selling expenses would be reflected in Ivanhoe Corporation’s quarterly report prepared for the first quarter of the 2017–2018 fiscal year. IVANHOE CORPORATION INCOME STATEMENT 2017–2018 $
1. The company should report its quarterly results as if each interim period is an integral part of the annual period.
2.The company’s revenue and expenses would be reported as follows on its quarterly report prepared for the first quarter of the 2012–2013 fiscal year:
Sales revenue $56,000,000
Cost of goods sold $35,200,000
Variable selling expenses $870,000
Fixed selling expenses
Advertising ($1,810,000 ÷ 4) 452,000
Other ($2,720,000– $1,810,000) 910,000
Sales revenue and cost of goods sold receive the same treatment as if this were an annual report. Costs and expenses other than product costs should be charged to expense in interim periods as incurred or allocated among interim periods. Consequently, the variable selling expense and the portion of fixed selling expenses not related to the television advertising should be reported in full. One-fourth of the television advertising is reported as an expense in the first quarter, assuming TV advertising is constant throughout the year. These costs can be deferred within the fiscal period if the benefits of the expenditure clearly extend beyond the interim period in which the expenditure is made.