Betsy Kirkland,Inc

question 48

Multiple Choice

Betsy Kirkland,Inc.incurred a flood loss during the first quarter of 2009 that is deemed both unusual and infrequent.The loss is considered immaterial to the twelve-month period,but is material in amount relative to the first quarter.The proper accounting treatment in the first quarterly interim statement is to:

• A)Ignore the loss.
• B)Record the loss in the first quarter as an extraordinary loss,net of income taxes.
• C)Record one-fourth of the loss in the first quarter as an extraordinary loss,net of income taxes.
• D)Ignore the loss in the first quarter,and record it in the annual statement only.
• E)Record the loss in the first quarter,as an extraordinary loss,and disclose the loss in a separate note or on the income statement.

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs (both variable and fixed) in the cost of a product.

Unit Product Cost

The calculated cost associated with producing a single unit of product, including direct materials, labor, and overhead.

Absorption Costing

An accounting practice where the cost of a product is calculated by including all expenses from manufacturing, like direct materials, direct labor, and both variable and fixed overheads.

Unit Product Cost

The total cost (fixed and variable) assigned to a unit of product, determining its cost of production per unit.