Problem: J. J. Kersee 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 2006-2007 fiscal year. Kersee's financial accounting department has compiled the following summarized revenue and expense data for the first quarter of the year.
Sales $60,000,000
Cost of goods sold 36,000,000
Variable selling expenses 2,000,000
Fixed selling expenses 3,000,000
Included in the fixed selling expenses was the single lump sum payment of $2,000,000 for television advertisements for the entire year.
Instructions:
(a) J. J. Kersee Corporation must issue its quarterly financial statements in accordance with generally accepted accounting principles regarding interim financial reporting.
(1) Explain whether Kersee should 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.
(2) State how the sales, cost of goods sold, and fixed selling expenses would be reflected in Kersee Corporation's quarterly report prepared for the first quarter of the 2006-2007 fiscal year. Briefly justify your presentation.
(b) What financial information, as a minimum, must Kersee Corporation disclose to its stockholders in its quarterly reports?