On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List B represents the general accounting treatment required for these transactions. These treatments are:
* Cumulative effect approach - Include the cumulative effect of the adjustment resulting from the accounting change or error correction in the 1993 financial statements, and do not restate the 1992 financial statements.
* Retroactive or retrospective restatement approach - Restate the 1992 financial statements and adjust 1992 beginning retained earnings if the error or change affects a period prior to 1992.
* Prospective approach - Report 1993 and future financial statements on the new basis but do not restate 1992 financial statements.
Item to Be Answered
During 1993, Quo determined that an insurance premium paid and entirely expensed in 1992 was for the period January 1, 1992, through January 1, 1994.
List B (Select one)

• A. Cumulative effect approach.
• B. Retroactive or retrospective restatement approach.
• C. Prospective approach.

Gown, Inc. sold a warehouse and used the proceeds to acquire a new warehouse. The excess of the proceeds over the carrying amount of the warehouse sold should be reported as a(an):

• A. Extraordinary gain, net of income taxes.
• B. Gain from discontinued operations, net of income taxes.
• C. Reduction of the cost of the new warehouse.
• D. Part of continuing operations.

During a period when an enterprise is under the direction of a particular management, its financial statements will directly provide information about:

• A. Enterprise performance but not directly provide information about management performance.
• B. Neither enterprise performance nor management performance.
• C. Management performance but not directly provide information about enterprise performance.
• D. Both enterprise performance and management performance.

Grum Corp., a publicly-owned corporation, is subject to the requirements for segment reporting. In its income statement for the year ended December 31, 1991, Grum reported revenues of $50,000,000, operating expenses of $47,000,000, and net income of $3,000,000. Operating expenses include payroll costs of $ 15,000,000. Grum's combined identifiable assets of all industry segments at December 31, 1991, were $40,000,000.
In its 1991 financial statements, Grum should disclose major customer data if sales to any single customer amount to at least:

• A. $1,500,000
• B. $4,000,000
• C. $300,000
• D. $5,000,000

On December 31, 20X2, the Board of Directors of Maxy Manufacturing, Inc. committed to a plan to discontinue the operations of its Alpha division. Maxy estimated that Alpha's 20X3 operating loss would be $500,000 and that the fair value of Alpha's facilities was $300,000 less than their carrying amounts.
Alpha's 20X2 operating loss was $1,400,000, and the division was actually sold for $400,000 less than its carrying amount in 20X3. Maxy's effective tax rate is 30%.
In its 20X2 income statement, what amount should Maxy report as loss from discontinued operations?

• A. $980,000
• B. $1,190,000
• C. $1,400,000
• D. $1,700,000