An inventory loss from a market price decline occurred in the first quarter, and the decline was not
expected to reverse during the fiscal year. However, in the third quarter the inventory's market price
recovery exceeded the market decline that occurred in the first quarter. For interim financial reporting, the
dollar amount of net inventory should:

• A. Decrease in the first quarter by the amount of the market price decline and not be affected in the third
  quarter.
• B. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter
  by the amount of the decrease in the first quarter.
• C. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter
  by the amount of the market price recovery.
• D. Not be affected in either the first quarter or the third quarter.

A transaction that is unusual in nature and infrequent in occurrence should be reported separately as a
component of income:

• A. After cumulative effect of accounting changes and before discontinued operations of a segment of a
  business.
• B. After cumulative effect of accounting changes and after discontinued operations of a segment of a
  business.
• C. After discontinued operations of a segment of a business.
• D. Before cumulative effect of accounting changes and before discontinued operations of a segment of a
  business.

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

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

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
1 992 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
1 992 financial statements.
During 1993, Quo increased its investment in Worth, Inc. from a 10% interest, purchased in 1992, to 30%,
and acquired a seat on Worth's board of directors. As a result of its increased investment, Quo changed
its method of accounting for investment in Worth, Inc. from the cost method to the equity method.
List B

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