Chap 008

Chapter 08 - Segment and Interim Reporting
Chapter 08 Segment and Interim Reporting

Multiple Choice Questions
1. Generally accepted accounting principles require a U.S. corporation to disclose the following disaggregated information for each operating segment, except: A. Revenues from external customers. B. Discontinued operations. C. Cost of goods sold. D. Depreciation expense. E. Intersegment revenues.
2. Which tests must a company use to determine which operating segments require separate disclosure? A. Revenue test and asset test. B. Revenue test, profit or loss test, and asset test. C. Revenue test and profit or loss test. D. Profit or loss test and asset test. E. Revenue test, asset test, and liability test.
3. Coulanger Corp. identified four operating segments: A, B, C, and D. Segment A met the revenue test for identifying reportable segments while Segment C met the revenue test, profit or loss test, and asset test. Segment B and Segment D did not meet any of these tests. Which of these segments must be disclosed separately?
A. Option A B. Option B C. Option C D. Option D E. Option E
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4. Kaycee Corporation's revenues for the year ended December 31, 2010, were as follows: Consolidated Revenue per the Income Statement: $1,200,000 Upstream Intersegment Sales: $180,000 Downstream Intersegment Sales: $60,000 For purposes of the Revenue Test, what amount will be used as the benchmark for determining whether a segment is reportable? A. $24,000. B. $120,000. C. $138,000. D. $144,000. E. $0
Natarajan, Inc. had the following operating segments, with the indicated amounts of segment revenues and segment expenses:
5. According to the revenue test, which segments would require disaggregation? A. A, B, D, and E. B. A and B. C. B and C. D. A, B, and D. E. C, D, and E.
6. According to the profit or loss test, which segments would require disaggregation? A. A, B, D, and E. B. A, B, C, and E. C. A, B, and D. D. A and D. E. A only.
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7. For purposes of the profit or loss test, segment C's operating profit or (loss) is A. $1,300,000. B. $700,000. C. $2,000,000. D. $200,000. E. $(200,000).
8. When totaling the revenues to use as the basis for the 75% rule, what is the 75% hurdle that must be exceeded by the revenues of the reportable segments? A. $1,670,000. B. $12,525,000. C. $15,487,500. D. $16,700,000. E. $20,650,000.
9. When defining a reportable segment, which of the following conditions would be sufficient to allow a company to combine two operating segments for purposes of testing? A. The products sold by each segment are produced in the same plant. B. Both segments have several customers in common. C. The segments may sell different products, but they have a similar production process. D. Both segments are required to adhere to U.S. Department of Labor regulations regarding immigration laws. E. Both segments are owned by the same parent company.
The Fratilo Co. had three operating segments with the following information:
In addition, revenues generated at corporate headquarters are $1,400.
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10. Combined segment revenues are calculated to be A. $29,400. B. $25,200. C. $26,600. D. $28,000. E. $27,300.
11. What is the minimum amount of revenue that each of these segments must earn to be considered separately reportable? A. $2,730. B. $2,660. C. $2,800. D. $2,940. E. $2,520.
12. The Rivers Co. had four separate operating segments:
What amount of revenues must be generated from one customer before that party must be identified as a major customer? A. $57,680. B. $64,960. C. $52,640. D. $78,960. E. $63,560.
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13. Which one of the following items must be disclosed for all reportable operating segments in the notes to financial statements? (I.) Revenue from external customers. (II.) Total Segment Assets (III.) Revenues from foreign customers, identified by country. A. I, II, and III B. I and III only C. II and III only D. I and II only E. There is no requirement of information to disclose for operating segments.
14. Kurves Corp. had six different operating segments reporting the following operating profit and loss figures:
Which one of the following statements is true? A. Segment A is a reportable segment based on this test. B. Segment B is not a reportable segment based on this test. C. Segment E is a reportable segment based on this test. D. Segment C is not a reportable segment based on this test. E. Segment D is a reportable segment based on this test.
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Retro Corp. was engaged solely in manufacturing operations. The following data pertain to the operating segments for 2011:
15. What is the minimum amount of revenue that each of these segments must earn to be considered separately reportable? A. $4,343,684. B. $4,826,316. C. $5,067,632. D. $4,585,000. E. $4,705,658.
16. What is the minimum amount of profit or loss that each of these segments must earn to be considered separately reportable? A. $769,263. B. $812,000. C. $854,737. D. $897,000. E. $833,368.
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17. What is the minimum amount of assets that each of these segments must own to be considered separately reportable? A. $9,450,000. B. $8,624,272. C. $10,643,000. D. $12,936,408. E. $10,413,000.
18. Which of the following statements is true regarding the determination of operating segments in order to decide which segments will be separately reported? A. An operating segment is a component of an enterprise that engages in business activities from which it only earns revenues. B. The operating results of an operating segment are reviewed regularly by the corporate controller to assess performance. C. There is integral financial information available for each operating segment. D. An organizational unit can be an operating segment if all of its revenues or expenses result from transactions with other segments. E. All parts of a company must be included in some operating segment.
19. A company that generates reports by both geographic region and product line must consider additional criteria in identifying operating segments when there are multiple sets of reports. Which of the following statement(s) is correct? (I.) An operating segment has a segment manager who is directly accountable to the chief operating decision maker for its financial performance. (II.) If more than one set of organizational units exists, each organizational unit is considered an operating segment even if there is only one set for which segment managers are held responsible. (III.) If segment managers exist for two or more overlapping sets of organizational units, the nature of the business activities must be considered. A. I, II, and III. B. I and III only. C. I and II only. D. II and III only. E. None of the above.
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20. Which of the following is not one of the criteria management should consider in determining whether business activities and environments of an operating segment are similar? A. The geographical location of the operations. B. The nature of the production process. C. The distribution methods. D. The nature of the regulatory environment, if applicable. E. The type or class of customer.
21. The hardware operating segment of Bloom Corporation has the following revenues for the year ended December 31, 2011:
For purposes of the revenue test, what amount will be used as total revenues of the hardware operating segment? A. $417,000. B. $440,000. C. $424,000. D. $460,000. E. $480,000.
22. Which of the following statements is false concerning the number of operating segments that should be disclosed? A. At least 75 percent of total company sales made to outsiders should be presented. B. Even though an operating segment has been reportable in the past and is of continuing significance, it must meet at least one of the three reporting tests to report separately in the current year. C. If the 75 percent rule is not met by the results of applying all three reporting tests, additional segments must be disclosed separately despite their failure to satisfy even one of the three quantitative thresholds. D. If an operating segment qualifies for disclosure in the current year, prior period segment data presented for comparative purposes must be restated to reflect the newly reportable segment as a separate segment. E. The practical limit to the number of operating segments is 10.
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23. Whitley Corporation identified four operating segments: Automotive, Electrical, Lawn Equipment, and Sporting Goods. Automotive met the revenue test and the profit or loss test. Electrical met all three tests. Lawn Equipment met only the asset test. Sporting Goods did not meet any of the three tests. Which of these segments must be disclosed separately?
24. Which one of the following items is not required to be disclosed for each operating segment? A. Factors used to identify operating segments. B. Products and services from which each segment derives its revenues. C. Revenues from external customers. D. Factors used to allocate company-wide expenses. E. Revenues from transactions with other operating segments.
25. The following items are required to be disclosed for each operating segment except: A. Factors used to allocate company-wide pension expense. B. Revenues from transactions with other operating segments. C. Interest revenue and interest expense. D. Depreciation, depletion, and amortization expense. E. Revenues from external customers.
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Dean Hardware, Inc. is comprised of five operating segments. Information about each of these segments is as follows (in thousands; Intersegment loans are receivables):
26. What is the total amount of revenues in applying the revenue test? A. $794. B. $808. C. $892. D. $906. E. $934.
27. Which operating segments are reportable under the revenue test? A. Pails and Hardware. B. Rakes, Pails, and Hardware. C. Rakes, Hardware, and Accessories. D. Rakes and Pails. E. Rakes and Hardware.
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28. In applying the profit or loss test, what is the minimum amount an operating segment must have in order to meet the profit or loss test for a reportable segment? A. $8.2. B. $9.0 C. $10.4. D. $13.0. E. $82.0.
29. Which operating segments are reportable under the profit or loss test? A. Rakes, Pails, and Shovels. B. Rakes, Pails, Shovels, and Hardware. C. Rakes, Pails, and Hardware. D. Rakes, Pails, Shovels, Hardware, and Accessories. E. Pails and Hardware.
30. In applying the asset test, what is the minimum amount an operating segment must have in order to meet the asset test for a reportable segment? A. $12.5. B. $15.2. C. $17.2. D. $18.4. E. $19.8.
31. Which operating segments are reportable under the asset test? A. None. B. Pails. C. Rakes, Pails, and Shovels. D. Rakes, and Hardware. E. Rakes, Pails, and Hardware.
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Schilling, Inc. has three operating segments with the following information:
32. What is the minimum amount of revenue an operating segment must have to be considered a reportable segment? A. $12,000. B. $15,000. C. $15,500. D. $16,200. E. $16,700.
33. According to the revenues test, which segment(s) are separately reportable? A. Silver only. B. Crystal and Silver. C. China and Crystal. D. China and Silver. E. China, Crystal, and Silver.
Peterson Corporation has three operating segments with the following information:
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35. According to the revenues test, which segment(s) are separately reportable? A. Mowers only. B. Mowers and Edgers. C. Mowers and Weedeaters. D. Edgers and Weedeaters. E. Mowers, Edgers, and Weedeaters.
36. What amount of revenues must be generated from one customer before that party must be identified as a major customer? A. $3,900. B. $4,000. C. $4,100. D. $4,200. E. $4,400.
Elektronix, Inc. has three operating segments with the following information:
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38. What is the operating profit or loss for the VCRs segment? A. $121,000 profit. B. $121,000 loss. C. $124,000 profit. D. $124,000 loss. E. $500,000 profit.
39. What is the minimum amount of operating profit or loss an operating segment must have to be considered a reportable segment? A. $124,000. B. $127,600. C. $100,000. D. $130,000. E. $140,000.
40. What is the minimum amount of assets an operating segment must have to be considered a reportable segment? A. $1,400,000. B. $2,500,000. C. $4,100,000. D. $5,000,000. E. $25,000,000.
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41. Which operating segments are separately reportable under the revenues test? A. DVDs only. B. DVDs and MP3s. C. DVDs and VCRs. D. VCRs and MP3s. E. DVDs, VCRs, and MP3s.
42. Which operating segments are separately reportable under the operating profit or loss test? A. DVDs only. B. DVDs and MP3s. C. DVDs and VCRs. D. VCRs and MP3s. E. DVDs, VCRs, and MP3s.
43. Which operating segments are separately reportable under the assets test? A. DVDs only. B. DVDs and MP3s. C. DVDs and VCRs. D. VCRs and MP3s. E. DVDs, VCRs, and MP3s.
44. Which of the segments are separately reportable? A. DVDs only. B. DVDs and MP3s. C. DVDs and VCRs. D. VCRs and MP3s. E. DVDs, VCRs, and MP3s.
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45. Which of the following statements is true according to U.S. GAAP regarding segment or enterprise-wide disclosure? A. A reconciliation of segment assets to consolidated assets is required. B. Segment information does not have to be in accordance with generally accepted accounting principles. C. Disclosure of a major customer's identity is required. D. Geographic area information must be disclosed in interim financial statements. E. A company comprised of only one operating segment does not have to report geographic area information.
46. Which of the following is a criterion for determining whether an operating segment is separately reportable? A. An operating segment's assets are 10 percent or more of combined segment assets. B. An operating segment's assets are 10 percent or more of consolidated assets. C. An operating segment's assets are 10 percent or more of combined segment liabilities. D. An operating segment's assets are 10 percent or more of consolidated liabilities. E. An operating segment's assets are 10 percent or more of corporate assets.
47. Which of the following operating segment disclosures is not required by U.S. GAAP? A. Interest expense. B. Intersegment sales. C. Extraordinary items. D. Discontinued operations. E. Liabilities.
48. Vapor Corporation has a fan products operating segment. Which of the following items does Vapor not have to report for this segment? A. Depreciation expense. B. Amortization expense. C. Research and development expense. D. Interest expense. E. Interest income.
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49. Which of the following must be disclosed by a geographic segment according to U.S. GAAP? A. Operating profit or loss. B. Gross profit. C. Total assets. D. Revenues from external customers. E. Revenues from internal customers.
50. Which of the following is not true for an operating segment according to U.S. GAAP? A. Discrete financial information generated by the internal accounting system is available. B. The segment earns revenues and incurs expenses. C. The segment is regularly reviewed by a chief decision maker to assess performance decisions. D. The segment is regularly reviewed by a chief decision maker to make resource allocations. E. An organizational unit can not be an operating segment if all of its operating transactions are only with other segments of the organization.
51. Which of the following statements is true? A. In determining reportable segments, two tests are applied and both must be met. B. In determining reportable segments, three tests are applied and all three must be met. C. In determining reportable segments, two tests are applied and only one must be met. D. In determining reportable segments, three tests are applied and only one must be met. E. In determining reportable segments, at least 80% of the revenues from external customers must be reported.
52. According to U.S. GAAP, which of the following would be an acceptable grouping by a U.S. company for presentation of information by geographic area? A. France, Germany, All Other Countries. B. United States, Europe, Canada. C. United States, Africa, Europe, Asia. D. United States, Canada, Mexico, Germany. E. North America, Spain, All Other Countries.
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53. Which of the following would be an acceptable grouping for a U.S. company to provide information by geographic area? A. United States, All Other Countries. B. United States, Europe, Taiwan. C. United States, Asia, Germany. D. United States, Central America, Mexico, Germany. E. South America, Spain, All Other Countries.
54. What information does U.S. GAAP require to be disclosed for a major customer? A. The identity of the customer. B. The operating segment reporting sales to the customer. C. The geographic area of the customer. D. The percentage of sales derived from the customer. E. The length of time the customer has been a customer of the company.
55. How should revenues be recognized in interim periods? A. In the same way as they are recognized on an annual basis. B. On the cash basis. C. On an annualized basis. D. On a seasonal basis. E. There are no revenues recognized in interim periods.
56. Which of the following is not correct regarding inventory procedures reported in an interim financial statement? A. LIFO liquidations expected to be replaced by the end of the year are accounted for in cost of goods sold at expected replacement cost rather than original LIFO cost. B. Lower-of-cost-or-market adjustments are not made for the interim period if they are expected to reverse by the end of the year. C. Variances in a standard costing system are reported at the end of the interim period unless they are expected to be absorbed by year-end. D. FIFO is remeasured using the LIFO method in an interim financial statement. E. LIFO liquidations not expected to be replaced by the end of the year are reflected in cost of goods sold at original LIFO cost.
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Cement Company, Inc. began the first quarter with 1,000 units of inventory costing $25 per unit. During the first quarter, 3,000 units were purchased at a cost of $40 per unit, and sales of 3,400 units at $65 per units were made. During the second quarter, the company expects to replace the units of beginning inventory sold at a cost of $45 per unit. Cement Company uses the LIFO method to account for inventory.
57. What is the correct journal entry to record cost of goods sold at the end of the first quarter?
58. The amount of gross profit for the first quarter is: A. $83,000 B. $87,000 C. $90,000 D. $221,000 E. $250,000
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59. Betsy Kirkland, Inc. incurred a flood loss during the first quarter of 2011 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 quarter 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, but not as an extraordinary loss, and disclose the loss in a separate note or in the income statement as a separate line item.
60. How should a change from one generally accepted accounting principle to another accepted principle be handled in a third-quarter income statement? A. Retrospectively restate the first-quarter income statement, net of income taxes, as though the change occurred at the beginning of the year. B. Postpone recording of the change to the annual income statement. C. Record the change in the third-quarter income statement, net of income taxes. D. Adjust financial statements for each prior period presented to reflect the effects of the new principle in those reported periods. E. These changes are prohibited by GAAP.
61. Which of the following is not a required disclosure in an interim financial report? A. Sales or gross revenues. B. Provision for income taxes. C. Extraordinary items. D. Gains on sales of major equipment. E. Earnings per share.
62. Which of the following is not a required disclosure in an interim financial report? A. Net income. B. Earnings per share. C. Gross profit. D. Significant changes in estimates or provisions for income taxes. E. Disposal of a segment, net of income taxes.
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63. Which of the following items of information are required to be included in interim reports for each operating segment? (I.) Revenues from external customers (II.) Segment profit or loss (III.) Reconciliation of segment profit or loss to the enterprise's total income before taxes (IV.) Intersegment revenues A. I and III only. B. I and II only. C. I, II and III. D. II and III only. E. I, II, III, and IV.
64. How are extraordinary gains reported in a third quarter interim financial report? A. Recognized at year-end only. B. Recognized in the first quarter. C. Recognized ratably over the first three quarters. D. Recognized in the third quarter. E. Ignored.
65. What are the two approaches that can be followed in preparing interim reports? A. Indiscrete and terminal. B. Discrete and terminal. C. Metric and integral. D. Discrete and integral. E. Discrete and metric.
66. Which of the following is reported for interim financial reports using the discrete approach? A. Income tax expense. B. Seasonal items. C. Change in accounting principle. D. Property tax expense. E. Extraordinary gains.
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67. Which of the following is reported for interim financial reports using the integral approach? A. Bonus expense. B. Extraordinary losses. C. Cash basis accounting. D. Extraordinary gains. E. Change in accounting principle.
68. How should seasonal revenues be reported in an interim financial statement? A. The seasonal nature should be disclosed, and a pro forma report for the next 12-month period should supplement the interim report. B. The seasonal nature should be disclosed but no other reports should accompany the interim report. C. The seasonal nature should be disclosed, and a supplemental report for the 12-month period ended at the interim date should supplement the interim report. D. The financial statements should be adjusted to reflect the assumption that no seasonal revenues could be earned. E. Seasonal revenues have no particular reporting requirement.
69. Which of the following are required to be disclosed in interim reports? A. Cash flows from investing activities. B. Change in cash. C. Total current liabilities. D. Total assets. E. Gross revenues.
70. All of the following are required to be reported in interim financial statements for a material operating segment except: A. Segment assets. B. Segment revenues from external customers. C. Intersegment revenues. D. Segment profit or loss. E. Reconciliation of segment profit or loss to total income before taxes.
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71. What is the appropriate treatment in an interim financial report for inventory that has market value below cost? A. The loss should always be recorded in the interim period in which market value drops below cost. B. The loss should be recorded in the interim period in which market value drops below cost if the loss is considered temporary. C. The loss should be recorded in the interim period in which market value drops below cost if the loss is considered permanent. D. The loss should be ignored for interim reporting purposes. E. There is no loss to report.
72. What is the appropriate treatment in an interim financial report for inventory that has cost below market value? A. The loss should always be recorded in the interim period in which cost drops below market value. B. The loss should be recorded in the interim period in which cost drops below market value if the loss is considered temporary. C. The loss should be recorded in the interim period in which cost drops below market value if the loss is considered permanent. D. The loss should be ignored for interim reporting purposes. E. There is no loss to report.
73. What is the appropriate treatment in an interim financial report for a LIFO liquidation? A. The LIFO liquidation is always ignored for interim reporting. B. The LIFO liquidation should always be reflected in gross profit on an interim income statement. C. The LIFO liquidation should always result in replacement cost valuation of ending inventory on the interim balance sheet and the interim income statement. D. The LIFO liquidation should always result in replacement cost valuation of ending inventory on the interim income statement but not the interim balance sheet. E. The LIFO liquidation should only be reflected in gross profit on an interim income statement if it is determined that it will not be replaced by year-end.
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74. Which of the following statements is true regarding the reporting of revenues in an interim report? A. Revenues should be recognized on the income tax basis for interim reporting. B. Revenues should be recognized in interim periods in the same way as they are on an annual basis. C. Projected losses on long-term contracts should be deferred to the annual report. D. The percentage-of-completion method of reporting long-term construction projects is not an acceptable method for interim reporting. E. Revenues should be recognized on the cash basis of accounting for interim reporting.
75. What is the appropriate treatment in an interim financial report for variances arising from the use of a standard costing system? A. The variances are always ignored for interim reporting. B. The variances should always be reflected in gross profit on an interim income statement. C. The variances expected to be absorbed by year-end should not be reflected in the interim statement. D. The variances should always be reflected in the interim income statement but not the interim balance sheet. E. The variances should only be reflected in the interim balance sheet.
76. Which of the following costs require similar treatment to Property Tax Expense in an interim financial report? 1) Annual major repairs. 2) Advertising expense. 3) Bonus expense, if estimable. 4) Quantity discounts based on annual sales. A. 1 and 2 B. 1, 2, and 3 C. 1, 2, and 4 D. 2, 3, and 4 E. 1, 2, 3, and 4
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77. How should contingencies be reported in an interim report? A. Disclosed the same way as they are disclosed in annual reports. B. Disclosed in the interim period discovered, and ignored in all future periods. C. Recorded as gains or losses as incurred. D. Recorded as gains or losses only if material. E. Ignored.
Provo, Inc. has an estimated annual tax rate of 35 percent in the first quarter of 2011. Pretax income for the first quarter was $300,000. At the end of the second quarter of 2011, Provo expects the annual tax rate to be 32 percent because of anticipated tax credits. Pretax income for the second quarter was $350,000. Assume no items in either quarter requiring the net-of-tax presentation.
78. How much income tax expense is recognized in the first quarter of 2011? A. $0. B. $26,250. C. $96,000. D. $105,000. E. $112,000.
79. How much income tax expense is recognized in the second quarter of 2011? A. $103,000. B. $104,000. C. $112,000. D. $122,500. E. $208,000.
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Baker Corporation changed from the LIFO method to the FIFO method for inventory valuation during 2011. Baker has an effective income tax rate of 30 percent and 100,000 shares of common stock issued and outstanding. The following additional information is available:
80. Assuming Baker makes the change in the first quarter of 2011, how much is reported as net income for the first quarter of 2011? A. $492,000. B. $494,800. C. $500,000. D. $505,200. E. $527,950.
81. Assuming Baker makes the change in the first quarter of 2011, compute net income per common share. A. $4.92. B. $4.95. C. $5.00. D. $5.05. E. $5.28.
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83. Assuming Baker makes the change in the first quarter of 2011 and that $400,000 net income is earned during the second quarter, how much is reported as net income for the second quarter of 2011? A. $400,000. B. $405,200. C. $427,950. D. $894,850. E. $905,200.
84. For companies that provide quarterly reports, how is the fourth quarter reported? A. Every company that reports for the first three quarters must also publish a fourth-quarter report. B. No fourth-quarter report is required. C. No company may publish a fourth-quarter report. D. The SEC requires selected quarterly financial data to be reported separately as a fourthquarter report. E. When fourth-quarter financial statements are provided, special accounting items should be disclosed in the annual financial statements.
85. According to International Financial Reporting Standards (IFRS), all of the following are part of minimum components of interim financial reporting except: A. A condensed statement of cash flows. B. A condensed statement of financial position. C. A condensed statement of stockholders' equity. D. A condensed statement of net income and comprehensive income. E. Accrual of income tax expense at the end of each interim period.
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86. Which of the following is false with regard to accounting standards for segment reporting according to International Financial Reporting Standards (IFRS) and U.S. GAAP? A. IFRS and U.S. GAAP do not each require disclosure of segment liabilities. B. IFRS and U.S. GAAP both require disclosure of intangible assets attributable to geographic segments. C. According to IFRS, operating segments can be based on products and services. D. According to IFRS, operating segments can be based on geographic areas. E. IFRS and U.S. GAAP both require disclosure of total assets.
Essay Questions
87. What is the major objective of segment reporting?
88. What is meant by the term, disaggregated financial information?
89. Why are quarterly financial statements required to be published for publicly traded companies in the U.S.?
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90. How does a company measure income tax expense to be reported in an interim period?
91. What two disclosure guidelines for operating segment information are designed to ensure the consistency of data reported from year to year?
92. Describe the test to determine whether a sufficient number of operating segments are disclosed.
93. What approach is used, according to U.S. GAAP, for determination of how a business is divided into segments?
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94. According to U.S. GAAP, what general information about an operating segment needs to be disclosed?
95. According to U.S. GAAP, how should common costs be allocated to individual segments to determine segment profit or loss?
96. List the five aggregation criteria that need to be considered by management in determining whether business activities and environments are similar.
97. What is the purpose of the U.S. GAAP seventy-five percent requirement for industry segment disclosure?
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98. According to U.S. GAAP, what revenues and expenses included in segment profit or loss need to be disclosed?
99. What related items need to be disclosed in regard to total segment assets?
100. Which items of information are required to be included in interim reports for each operating segment?
101. Which two items of information must be reported for (1) the domestic country, (2) all foreign countries in which the enterprise derives revenues or holds assets, and (3) each foreign country in which a material amount of revenues is earned?
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102. Burnside Corp. is organized into four operating segments. The following segment information was generated by the internal reporting system in 2011:
Required: 1) What was the profit or loss of each of these segments? 2) Prepare the profit or loss test to determine which of these segments was separately reportable.
Faru Co. identified five industry segments: (1) plastics, (2) metals, (3) lumber, (4) paper, and (5) finance. Each of these segments had been consolidated appropriately by the company in producing its annual financial statements. Information describing each segment is presented below (in thousands).
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103. Prepare the revenue test and determine which of these segments was separately reportable.
104. Prepare the profit or loss test and determine which of these segments was separately reportable.
105. Prepare the asset test and determine which of these segments was separately reportable.
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106. Blanton Corporation is comprised of five operating segments. Information about each of these segments is as follows (in thousands):
Required: (a.) Which operating segments are reportable under the revenue test? (b.) What is the total amount of revenues in applying the revenues test? (c.) Which operating segments are reportable under the profit or loss test? (d.) In applying the profit or loss test, what is the minimum amount an operating segment must have in order to meet the profit or loss test for a reportable segment? (e.) Which operating segments are reportable under the asset test? (f.) In applying the asset test, what is the minimum amount an operating segment must have in order to meet the asset test for a reportable segment? (g.) Which operating segments are reportable? (h.) According to the test results for reportable segments, is there a sufficient number of reported segments or should any additional segments also be disclosed? Explain the reason for your conclusion.
On February 23, 2011, Cleveland, Inc., paid property taxes of $300,000 for the calendar year 2011.
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107. How much of this expense should be included in Cleveland's net income for the quarter ending March 31, 2011?
108. Prepare the journal entry for the payment of property taxes on February 23, 2011.
Gregor, Inc., uses the LIFO cost-flow assumption to value inventory. Inventory for Gregor on January 1, 2011 was 100 units at a LIFO cost of $25 per unit. During the first quarter of 2011, 200 units were purchased costing an average of $40 per unit, and sales of 265 units at a retail price of $50 per unit were made.
109. Assuming Gregor does not expect to replace the units of beginning inventory sold, what is the amount of cost of goods sold for the quarter ended March 31, 2011?
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110. Assuming Gregor expects to replace the units of beginning inventory sold before the yearend at a cost of $41, what is the amount of cost of goods sold for the quarter ended March 31, 2011?
Harrison Company, Inc. began operations on January 1, 2010, and applied the LIFO method for inventory valuation. On June 10, 2011, Harrison adopted the FIFO method of accounting for inventory. Additional information is as follows:
The LIFO method was applied during the first quarter of 2011 and the FIFO method was applied during the second quarter of 2011 in computing income, above. Harrison's effective income tax rate is 40 percent. Harrison has 500,000 shares of common stock outstanding at all times.
111. Compute the after-tax effect of Harrison's change in inventory method.
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112. Prepare a schedule showing the calculation of net income and earnings per share to be reported by Harrison for the three-month period and the six-month period ended June 30, 2010 and 2011.
The following information for Urbanski Corporation relates to the three months ending June 30, 2011:
Urbanski uses the LIFO method to account for inventory, and expects at least 15,000 units to be on hand in the ending inventory at year-end. Purchases made in the last six months are expected to cost an average of $18 per unit.
113. Compute cost of goods sold and gross profit for the quarter ending June 30, 2011.
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114. Prepare the journal entries to reflect the sales and cost of goods sold, assuming Urbanski expects to maintain 11,000 units in inventory at year-end. Refer To: 08-114
115. Prepare the journal entries to reflect the sales and cost of goods sold, assuming Urbanski does not expect to replace the liquidated inventory at year-end. Refer To: 08-114
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Matching Questions
116. For each of the following situations, select the best answer concerning segment disclosures of reportable segments. 1. Not required to be disclosed by either an operating segment or a geographical segment Factors used to identify segments. 2. Required to be disclosed by an operating segment, but not a Revenues from external geographical segment customers. 3. Required to be disclosed by an Types of products and services operating segment, but not a from which each segment derives its geographical segment revenues. 4. Required to be disclosed by an operating segment, but not a geographical segment Names of major customers. 5. Required to be disclosed by an operating segment, but not a Revenues from transactions with geographical segment other segments. 6. Not required to be disclosed by either an operating segment or a geographical segment Interest revenue. 7. Required to be disclosed by both an operating segment and a geographical segment Long-lived assets. 8. Required to be disclosed by an operating segment, but not a Discontinued operations and geographical segment extraordinary items, when applicable. 9. Required to be disclosed by both an operating segment and a geographical segment Income tax expense or benefit. 10. Required to be disclosed by a geographical segment, but not an Revenues for the domestic operating segment country. 11. Required to be disclosed by an operating segment, but not a geographical segment Cash flow information
____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
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Chapter 08 Segment and Interim Reporting Answer Key
Multiple Choice Questions
1. Generally accepted accounting principles require a U.S. corporation to disclose the following disaggregated information for each operating segment, except: A. Revenues from external customers. B. Discontinued operations. C. Cost of goods sold. D. Depreciation expense. E. Intersegment revenues.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Medium Learning Objective: 08-03 List the basic disclosure requirements for operating segments.
2. Which tests must a company use to determine which operating segments require separate disclosure? A. Revenue test and asset test. B. Revenue test, profit or loss test, and asset test. C. Revenue test and profit or loss test. D. Profit or loss test and asset test. E. Revenue test, asset test, and liability test.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Easy Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant separate disclosure.
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3. Coulanger Corp. identified four operating segments: A, B, C, and D. Segment A met the revenue test for identifying reportable segments while Segment C met the revenue test, profit or loss test, and asset test. Segment B and Segment D did not meet any of these tests. Which of these segments must be disclosed separately?
AACSB: Analytic AICPA FN: Measurement Bloom's: Analysis Difficulty: Easy Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant separate disclosure.
4. Kaycee Corporation's revenues for the year ended December 31, 2010, were as follows: Consolidated Revenue per the Income Statement: $1,200,000 Upstream Intersegment Sales: $180,000 Downstream Intersegment Sales: $60,000 For purposes of the Revenue Test, what amount will be used as the benchmark for determining whether a segment is reportable? A. $24,000. B. $120,000. C. $138,000. D. $144,000. E. $0
AACSB: Analytic AICPA FN: Measurement Bloom's: Analysis Bloom's: Application Difficulty: Medium Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant separate disclosure.
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Natarajan, Inc. had the following operating segments, with the indicated amounts of segment revenues and segment expenses:
5. According to the revenue test, which segments would require disaggregation? A. A, B, D, and E. B. A and B. C. B and C. D. A, B, and D. E. C, D, and E.
6. According to the profit or loss test, which segments would require disaggregation? A. A, B, D, and E. B. A, B, C, and E. C. A, B, and D. D. A and D. E. A only.
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7. For purposes of the profit or loss test, segment C's operating profit or (loss) is A. $1,300,000. B. $700,000. C. $2,000,000. D. $200,000. E. $(200,000).
AACSB: Analytic AICPA FN: Measurement Bloom's: Application Difficulty: Medium Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant separate disclosure.
8. When totaling the revenues to use as the basis for the 75% rule, what is the 75% hurdle that must be exceeded by the revenues of the reportable segments? A. $1,670,000. B. $12,525,000. C. $15,487,500. D. $16,700,000. E. $20,650,000.
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9. When defining a reportable segment, which of the following conditions would be sufficient to allow a company to combine two operating segments for purposes of testing? A. The products sold by each segment are produced in the same plant. B. Both segments have several customers in common. C. The segments may sell different products, but they have a similar production process. D. Both segments are required to adhere to U.S. Department of Labor regulations regarding immigration laws. E. Both segments are owned by the same parent company.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Comprehension Difficulty: Medium Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant separate disclosure.
The Fratilo Co. had three operating segments with the following information:
In addition, revenues generated at corporate headquarters are $1,400.
10. Combined segment revenues are calculated to be A. $29,400. B. $25,200. C. $26,600. D. $28,000. E. $27,300.
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11. What is the minimum amount of revenue that each of these segments must earn to be considered separately reportable? A. $2,730. B. $2,660. C. $2,800. D. $2,940. E. $2,520.
12. The Rivers Co. had four separate operating segments:
What amount of revenues must be generated from one customer before that party must be identified as a major customer? A. $57,680. B. $64,960. C. $52,640. D. $78,960. E. $63,560.
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13. Which one of the following items must be disclosed for all reportable operating segments in the notes to financial statements? (I.) Revenue from external customers. (II.) Total Segment Assets (III.) Revenues from foreign customers, identified by country. A. I, II, and III B. I and III only C. II and III only D. I and II only E. There is no requirement of information to disclose for operating segments.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Easy Learning Objective: 08-03 List the basic disclosure requirements for operating segments.
14. Kurves Corp. had six different operating segments reporting the following operating profit and loss figures:
Which one of the following statements is true? A. Segment A is a reportable segment based on this test. B. Segment B is not a reportable segment based on this test. C. Segment E is a reportable segment based on this test. D. Segment C is not a reportable segment based on this test. E. Segment D is a reportable segment based on this test.
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Retro Corp. was engaged solely in manufacturing operations. The following data pertain to the operating segments for 2011:
15. What is the minimum amount of revenue that each of these segments must earn to be considered separately reportable? A. $4,343,684. B. $4,826,316. C. $5,067,632. D. $4,585,000. E. $4,705,658.
AACSB: Analytic AICPA FN: Measurement Bloom's: Application Difficulty: Easy Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant separate disclosure.
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16. What is the minimum amount of profit or loss that each of these segments must earn to be considered separately reportable? A. $769,263. B. $812,000. C. $854,737. D. $897,000. E. $833,368.
17. What is the minimum amount of assets that each of these segments must own to be considered separately reportable? A. $9,450,000. B. $8,624,272. C. $10,643,000. D. $12,936,408. E. $10,413,000.
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18. Which of the following statements is true regarding the determination of operating segments in order to decide which segments will be separately reported? A. An operating segment is a component of an enterprise that engages in business activities from which it only earns revenues. B. The operating results of an operating segment are reviewed regularly by the corporate controller to assess performance. C. There is integral financial information available for each operating segment. D. An organizational unit can be an operating segment if all of its revenues or expenses result from transactions with other segments. E. All parts of a company must be included in some operating segment.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Comprehension Difficulty: Medium Learning Objective: 08-01 Understand how an enterprise determines its operating segments and the factors that influence this determination.
19. A company that generates reports by both geographic region and product line must consider additional criteria in identifying operating segments when there are multiple sets of reports. Which of the following statement(s) is correct? (I.) An operating segment has a segment manager who is directly accountable to the chief operating decision maker for its financial performance. (II.) If more than one set of organizational units exists, each organizational unit is considered an operating segment even if there is only one set for which segment managers are held responsible. (III.) If segment managers exist for two or more overlapping sets of organizational units, the nature of the business activities must be considered. A. I, II, and III. B. I and III only. C. I and II only. D. II and III only. E. None of the above.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Hard Learning Objective: 08-01 Understand how an enterprise determines its operating segments and the factors that influence this determination. Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant separate disclosure.
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20. Which of the following is not one of the criteria management should consider in determining whether business activities and environments of an operating segment are similar? A. The geographical location of the operations. B. The nature of the production process. C. The distribution methods. D. The nature of the regulatory environment, if applicable. E. The type or class of customer.
21. The hardware operating segment of Bloom Corporation has the following revenues for the year ended December 31, 2011: For purposes of the revenue test, what amount will be used as total revenues of the hardware operating segment? A. $417,000. B. $440,000. C. $424,000. D. $460,000. E. $480,000.
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22. Which of the following statements is false concerning the number of operating segments that should be disclosed? A. At least 75 percent of total company sales made to outsiders should be presented. B. Even though an operating segment has been reportable in the past and is of continuing significance, it must meet at least one of the three reporting tests to report separately in the current year. C. If the 75 percent rule is not met by the results of applying all three reporting tests, additional segments must be disclosed separately despite their failure to satisfy even one of the three quantitative thresholds. D. If an operating segment qualifies for disclosure in the current year, prior period segment data presented for comparative purposes must be restated to reflect the newly reportable segment as a separate segment. E. The practical limit to the number of operating segments is 10.
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23. Whitley Corporation identified four operating segments: Automotive, Electrical, Lawn Equipment, and Sporting Goods. Automotive met the revenue test and the profit or loss test. Electrical met all three tests. Lawn Equipment met only the asset test. Sporting Goods did not meet any of the three tests. Which of these segments must be disclosed separately?
24. Which one of the following items is not required to be disclosed for each operating segment? A. Factors used to identify operating segments. B. Products and services from which each segment derives its revenues. C. Revenues from external customers. D. Factors used to allocate company-wide expenses. E. Revenues from transactions with other operating segments.
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25. The following items are required to be disclosed for each operating segment except: A. Factors used to allocate company-wide pension expense. B. Revenues from transactions with other operating segments. C. Interest revenue and interest expense. D. Depreciation, depletion, and amortization expense. E. Revenues from external customers.
Dean Hardware, Inc. is comprised of five operating segments. Information about each of these segments is as follows (in thousands; Intersegment loans are receivables):
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26. What is the total amount of revenues in applying the revenue test? A. $794. B. $808. C. $892. D. $906. E. $934.
27. Which operating segments are reportable under the revenue test? A. Pails and Hardware. B. Rakes, Pails, and Hardware. C. Rakes, Hardware, and Accessories. D. Rakes and Pails. E. Rakes and Hardware.
AACSB: Analytic AICPA FN: Measurement Bloom's: Analysis Difficulty: Medium Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant separate disclosure.
28. In applying the profit or loss test, what is the minimum amount an operating segment must have in order to meet the profit or loss test for a reportable segment? A. $8.2. B. $9.0 C. $10.4. D. $13.0. E. $82.0.
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29. Which operating segments are reportable under the profit or loss test? A. Rakes, Pails, and Shovels. B. Rakes, Pails, Shovels, and Hardware. C. Rakes, Pails, and Hardware. D. Rakes, Pails, Shovels, Hardware, and Accessories. E. Pails and Hardware.
30. In applying the asset test, what is the minimum amount an operating segment must have in order to meet the asset test for a reportable segment? A. $12.5. B. $15.2. C. $17.2. D. $18.4. E. $19.8.
31. Which operating segments are reportable under the asset test? A. None. B. Pails. C. Rakes, Pails, and Shovels. D. Rakes, and Hardware. E. Rakes, Pails, and Hardware.
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Schilling, Inc. has three operating segments with the following information:
33. According to the revenues test, which segment(s) are separately reportable? A. Silver only. B. Crystal and Silver. C. China and Crystal. D. China and Silver. E. China, Crystal, and Silver.
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Peterson Corporation has three operating segments with the following information:
35. According to the revenues test, which segment(s) are separately reportable? A. Mowers only. B. Mowers and Edgers. C. Mowers and Weedeaters. D. Edgers and Weedeaters. E. Mowers, Edgers, and Weedeaters.
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36. What amount of revenues must be generated from one customer before that party must be identified as a major customer? A. $3,900. B. $4,000. C. $4,100. D. $4,200. E. $4,400.
Elektronix, Inc. has three operating segments with the following information:
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38. What is the operating profit or loss for the VCRs segment? A. $121,000 profit. B. $121,000 loss. C. $124,000 profit. D. $124,000 loss. E. $500,000 profit.
39. What is the minimum amount of operating profit or loss an operating segment must have to be considered a reportable segment? A. $124,000. B. $127,600. C. $100,000. D. $130,000. E. $140,000.
40. What is the minimum amount of assets an operating segment must have to be considered a reportable segment? A. $1,400,000. B. $2,500,000. C. $4,100,000. D. $5,000,000. E. $25,000,000.
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41. Which operating segments are separately reportable under the revenues test? A. DVDs only. B. DVDs and MP3s. C. DVDs and VCRs. D. VCRs and MP3s. E. DVDs, VCRs, and MP3s.
42. Which operating segments are separately reportable under the operating profit or loss test? A. DVDs only. B. DVDs and MP3s. C. DVDs and VCRs. D. VCRs and MP3s. E. DVDs, VCRs, and MP3s.
43. Which operating segments are separately reportable under the assets test? A. DVDs only. B. DVDs and MP3s. C. DVDs and VCRs. D. VCRs and MP3s. E. DVDs, VCRs, and MP3s.
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44. Which of the segments are separately reportable? A. DVDs only. B. DVDs and MP3s. C. DVDs and VCRs. D. VCRs and MP3s. E. DVDs, VCRs, and MP3s.
45. Which of the following statements is true according to U.S. GAAP regarding segment or enterprise-wide disclosure? A. A reconciliation of segment assets to consolidated assets is required. B. Segment information does not have to be in accordance with generally accepted accounting principles. C. Disclosure of a major customer's identity is required. D. Geographic area information must be disclosed in interim financial statements. E. A company comprised of only one operating segment does not have to report geographic area information.
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46. Which of the following is a criterion for determining whether an operating segment is separately reportable? A. An operating segment's assets are 10 percent or more of combined segment assets. B. An operating segment's assets are 10 percent or more of consolidated assets. C. An operating segment's assets are 10 percent or more of combined segment liabilities. D. An operating segment's assets are 10 percent or more of consolidated liabilities. E. An operating segment's assets are 10 percent or more of corporate assets.
47. Which of the following operating segment disclosures is not required by U.S. GAAP? A. Interest expense. B. Intersegment sales. C. Extraordinary items. D. Discontinued operations. E. Liabilities.
48. Vapor Corporation has a fan products operating segment. Which of the following items does Vapor not have to report for this segment? A. Depreciation expense. B. Amortization expense. C. Research and development expense. D. Interest expense. E. Interest income.
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49. Which of the following must be disclosed by a geographic segment according to U.S. GAAP? A. Operating profit or loss. B. Gross profit. C. Total assets. D. Revenues from external customers. E. Revenues from internal customers.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Medium Learning Objective: 08-04 Determine when and what types of information must be disclosed for geographic areas.
50. Which of the following is not true for an operating segment according to U.S. GAAP? A. Discrete financial information generated by the internal accounting system is available. B. The segment earns revenues and incurs expenses. C. The segment is regularly reviewed by a chief decision maker to assess performance decisions. D. The segment is regularly reviewed by a chief decision maker to make resource allocations. E. An organizational unit can not be an operating segment if all of its operating transactions are only with other segments of the organization.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Easy Learning Objective: 08-01 Understand how an enterprise determines its operating segments and the factors that influence this determination.
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51. Which of the following statements is true? A. In determining reportable segments, two tests are applied and both must be met. B. In determining reportable segments, three tests are applied and all three must be met. C. In determining reportable segments, two tests are applied and only one must be met. D. In determining reportable segments, three tests are applied and only one must be met. E. In determining reportable segments, at least 80% of the revenues from external customers must be reported.
52. According to U.S. GAAP, which of the following would be an acceptable grouping by a U.S. company for presentation of information by geographic area? A. France, Germany, All Other Countries. B. United States, Europe, Canada. C. United States, Africa, Europe, Asia. D. United States, Canada, Mexico, Germany. E. North America, Spain, All Other Countries.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Comprehension Difficulty: Medium Learning Objective: 08-04 Determine when and what types of information must be disclosed for geographic areas.
53. Which of the following would be an acceptable grouping for a U.S. company to provide information by geographic area? A. United States, All Other Countries. B. United States, Europe, Taiwan. C. United States, Asia, Germany. D. United States, Central America, Mexico, Germany. E. South America, Spain, All Other Countries.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Comprehension Difficulty: Easy Learning Objective: 08-04 Determine when and what types of information must be disclosed for geographic areas.
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54. What information does U.S. GAAP require to be disclosed for a major customer? A. The identity of the customer. B. The operating segment reporting sales to the customer. C. The geographic area of the customer. D. The percentage of sales derived from the customer. E. The length of time the customer has been a customer of the company.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Medium Learning Objective: 08-05 Apply the criterion for determining when disclosure of a major customer is required.
55. How should revenues be recognized in interim periods? A. In the same way as they are recognized on an annual basis. B. On the cash basis. C. On an annualized basis. D. On a seasonal basis. E. There are no revenues recognized in interim periods.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Easy Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the annual period.
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56. Which of the following is not correct regarding inventory procedures reported in an interim financial statement? A. LIFO liquidations expected to be replaced by the end of the year are accounted for in cost of goods sold at expected replacement cost rather than original LIFO cost. B. Lower-of-cost-or-market adjustments are not made for the interim period if they are expected to reverse by the end of the year. C. Variances in a standard costing system are reported at the end of the interim period unless they are expected to be absorbed by year-end. D. FIFO is remeasured using the LIFO method in an interim financial statement. E. LIFO liquidations not expected to be replaced by the end of the year are reflected in cost of goods sold at original LIFO cost.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Medium Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the annual period.
Cement Company, Inc. began the first quarter with 1,000 units of inventory costing $25 per unit. During the first quarter, 3,000 units were purchased at a cost of $40 per unit, and sales of 3,400 units at $65 per units were made. During the second quarter, the company expects to replace the units of beginning inventory sold at a cost of $45 per unit. Cement Company uses the LIFO method to account for inventory.
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57. What is the correct journal entry to record cost of goods sold at the end of the first quarter?
AACSB: Analytic AICPA FN: Measurement Bloom's: Analysis Bloom's: Application Difficulty: Medium Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the annual period.
58. The amount of gross profit for the first quarter is: A. $83,000 B. $87,000 C. $90,000 D. $221,000 E. $250,000
AACSB: Analytic AICPA FN: Measurement Bloom's: Application Difficulty: Medium Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the annual period.
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59. Betsy Kirkland, Inc. incurred a flood loss during the first quarter of 2011 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 quarter 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, but not as an extraordinary loss, and disclose the loss in a separate note or in the income statement as a separate line item.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Comprehension Difficulty: Medium Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the annual period.
60. How should a change from one generally accepted accounting principle to another accepted principle be handled in a third-quarter income statement? A. Retrospectively restate the first-quarter income statement, net of income taxes, as though the change occurred at the beginning of the year. B. Postpone recording of the change to the annual income statement. C. Record the change in the third-quarter income statement, net of income taxes. D. Adjust financial statements for each prior period presented to reflect the effects of the new principle in those reported periods. E. These changes are prohibited by GAAP.
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61. Which of the following is not a required disclosure in an interim financial report? A. Sales or gross revenues. B. Provision for income taxes. C. Extraordinary items. D. Gains on sales of major equipment. E. Earnings per share.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Medium Learning Objective: 08-07 List the minimum disclosure requirements for interim financial reports.
62. Which of the following is not a required disclosure in an interim financial report? A. Net income. B. Earnings per share. C. Gross profit. D. Significant changes in estimates or provisions for income taxes. E. Disposal of a segment, net of income taxes.
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63. Which of the following items of information are required to be included in interim reports for each operating segment? (I.) Revenues from external customers (II.) Segment profit or loss (III.) Reconciliation of segment profit or loss to the enterprise's total income before taxes (IV.) Intersegment revenues A. I and III only. B. I and II only. C. I, II and III. D. II and III only. E. I, II, III, and IV.
64. How are extraordinary gains reported in a third quarter interim financial report? A. Recognized at year-end only. B. Recognized in the first quarter. C. Recognized ratably over the first three quarters. D. Recognized in the third quarter. E. Ignored.
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65. What are the two approaches that can be followed in preparing interim reports? A. Indiscrete and terminal. B. Discrete and terminal. C. Metric and integral. D. Discrete and integral. E. Discrete and metric.
66. Which of the following is reported for interim financial reports using the discrete approach? A. Income tax expense. B. Seasonal items. C. Change in accounting principle. D. Property tax expense. E. Extraordinary gains.
67. Which of the following is reported for interim financial reports using the integral approach? A. Bonus expense. B. Extraordinary losses. C. Cash basis accounting. D. Extraordinary gains. E. Change in accounting principle.
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68. How should seasonal revenues be reported in an interim financial statement? A. The seasonal nature should be disclosed, and a pro forma report for the next 12-month period should supplement the interim report. B. The seasonal nature should be disclosed but no other reports should accompany the interim report. C. The seasonal nature should be disclosed, and a supplemental report for the 12-month period ended at the interim date should supplement the interim report. D. The financial statements should be adjusted to reflect the assumption that no seasonal revenues could be earned. E. Seasonal revenues have no particular reporting requirement.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Medium Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the annual period. Learning Objective: 08-07 List the minimum disclosure requirements for interim financial reports.
69. Which of the following are required to be disclosed in interim reports? A. Cash flows from investing activities. B. Change in cash. C. Total current liabilities. D. Total assets. E. Gross revenues.
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70. All of the following are required to be reported in interim financial statements for a material operating segment except: A. Segment assets. B. Segment revenues from external customers. C. Intersegment revenues. D. Segment profit or loss. E. Reconciliation of segment profit or loss to total income before taxes.
71. What is the appropriate treatment in an interim financial report for inventory that has market value below cost? A. The loss should always be recorded in the interim period in which market value drops below cost. B. The loss should be recorded in the interim period in which market value drops below cost if the loss is considered temporary. C. The loss should be recorded in the interim period in which market value drops below cost if the loss is considered permanent. D. The loss should be ignored for interim reporting purposes. E. There is no loss to report.
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72. What is the appropriate treatment in an interim financial report for inventory that has cost below market value? A. The loss should always be recorded in the interim period in which cost drops below market value. B. The loss should be recorded in the interim period in which cost drops below market value if the loss is considered temporary. C. The loss should be recorded in the interim period in which cost drops below market value if the loss is considered permanent. D. The loss should be ignored for interim reporting purposes. E. There is no loss to report.
73. What is the appropriate treatment in an interim financial report for a LIFO liquidation? A. The LIFO liquidation is always ignored for interim reporting. B. The LIFO liquidation should always be reflected in gross profit on an interim income statement. C. The LIFO liquidation should always result in replacement cost valuation of ending inventory on the interim balance sheet and the interim income statement. D. The LIFO liquidation should always result in replacement cost valuation of ending inventory on the interim income statement but not the interim balance sheet. E. The LIFO liquidation should only be reflected in gross profit on an interim income statement if it is determined that it will not be replaced by year-end.
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74. Which of the following statements is true regarding the reporting of revenues in an interim report? A. Revenues should be recognized on the income tax basis for interim reporting. B. Revenues should be recognized in interim periods in the same way as they are on an annual basis. C. Projected losses on long-term contracts should be deferred to the annual report. D. The percentage-of-completion method of reporting long-term construction projects is not an acceptable method for interim reporting. E. Revenues should be recognized on the cash basis of accounting for interim reporting.
75. What is the appropriate treatment in an interim financial report for variances arising from the use of a standard costing system? A. The variances are always ignored for interim reporting. B. The variances should always be reflected in gross profit on an interim income statement. C. The variances expected to be absorbed by year-end should not be reflected in the interim statement. D. The variances should always be reflected in the interim income statement but not the interim balance sheet. E. The variances should only be reflected in the interim balance sheet.
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76. Which of the following costs require similar treatment to Property Tax Expense in an interim financial report? 1) Annual major repairs. 2) Advertising expense. 3) Bonus expense, if estimable. 4) Quantity discounts based on annual sales. A. 1 and 2 B. 1, 2, and 3 C. 1, 2, and 4 D. 2, 3, and 4 E. 1, 2, 3, and 4
AACSB: Analytic AICPA FN: Measurement Bloom's: Analysis Difficulty: Medium Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the annual period.
77. How should contingencies be reported in an interim report? A. Disclosed the same way as they are disclosed in annual reports. B. Disclosed in the interim period discovered, and ignored in all future periods. C. Recorded as gains or losses as incurred. D. Recorded as gains or losses only if material. E. Ignored.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Easy Learning Objective: 08-07 List the minimum disclosure requirements for interim financial reports.
Provo, Inc. has an estimated annual tax rate of 35 percent in the first quarter of 2011. Pretax income for the first quarter was $300,000. At the end of the second quarter of 2011, Provo expects the annual tax rate to be 32 percent because of anticipated tax credits. Pretax income for the second quarter was $350,000. Assume no items in either quarter requiring the net-of-tax presentation.
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78. How much income tax expense is recognized in the first quarter of 2011? A. $0. B. $26,250. C. $96,000. D. $105,000. E. $112,000.
AACSB: Analytic AICPA FN: Measurement Bloom's: Application Difficulty: Easy Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the annual period.
79. How much income tax expense is recognized in the second quarter of 2011? A. $103,000. B. $104,000. C. $112,000. D. $122,500. E. $208,000.
Baker Corporation changed from the LIFO method to the FIFO method for inventory valuation during 2011. Baker has an effective income tax rate of 30 percent and 100,000 shares of common stock issued and outstanding. The following additional information is available:
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81. Assuming Baker makes the change in the first quarter of 2011, compute net income per common share. A. $4.92. B. $4.95. C. $5.00. D. $5.05. E. $5.28.
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83. Assuming Baker makes the change in the first quarter of 2011 and that $400,000 net income is earned during the second quarter, how much is reported as net income for the second quarter of 2011? A. $400,000. B. $405,200. C. $427,950. D. $894,850. E. $905,200.
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84. For companies that provide quarterly reports, how is the fourth quarter reported? A. Every company that reports for the first three quarters must also publish a fourth-quarter report. B. No fourth-quarter report is required. C. No company may publish a fourth-quarter report. D. The SEC requires selected quarterly financial data to be reported separately as a fourthquarter report. E. When fourth-quarter financial statements are provided, special accounting items should be disclosed in the annual financial statements.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Easy Learning Objective: 08-07 List the minimum disclosure requirements for interim financial reports.
85. According to International Financial Reporting Standards (IFRS), all of the following are part of minimum components of interim financial reporting except: A. A condensed statement of cash flows. B. A condensed statement of financial position. C. A condensed statement of stockholders' equity. D. A condensed statement of net income and comprehensive income. E. Accrual of income tax expense at the end of each interim period.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Medium Learning Objective: 08-08 Recognize differences between U.S. GAAP and IFRS in segment and interim reporting.
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86. Which of the following is false with regard to accounting standards for segment reporting according to International Financial Reporting Standards (IFRS) and U.S. GAAP? A. IFRS and U.S. GAAP do not each require disclosure of segment liabilities. B. IFRS and U.S. GAAP both require disclosure of intangible assets attributable to geographic segments. C. According to IFRS, operating segments can be based on products and services. D. According to IFRS, operating segments can be based on geographic areas. E. IFRS and U.S. GAAP both require disclosure of total assets.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Medium Learning Objective: 08-08 Recognize differences between U.S. GAAP and IFRS in segment and interim reporting.
Essay Questions
87. What is the major objective of segment reporting? According to U.S. GAAP, the objective of segment reporting is to provide information to help users of financial statements: (a.) better understand the enterprise's performance, (b.) better assess its prospects for future net cash flows, and (c.) make more informed judgments about the enterprise as a whole.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Medium Learning Objective: 08-01 Understand how an enterprise determines its operating segments and the factors that influence this determination.
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88. What is meant by the term, disaggregated financial information? Disaggregated financial information is the data of a reporting unit that has been broken down into components so that the separate parts can be identified and studied.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Comprehension Difficulty: Easy Learning Objective: 08-01 Understand how an enterprise determines its operating segments and the factors that influence this determination.
89. Why are quarterly financial statements required to be published for publicly traded companies in the U.S.? Publicly traded U.S. companies must publish quarterly reports to provide investors and creditors with relevant information on a more timely basis than is provided by an annual report.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Comprehension Difficulty: Easy Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the annual period.
90. How does a company measure income tax expense to be reported in an interim period? Income tax expense related to interim period income is determined by estimating the effective tax rate for the entire year. That rate is then applied to the cumulative pre-tax income earned to date to determine the cumulative income tax to be recognized to date. The amount of income tax recognized in the current interim period is the difference between the cumulative income tax to be recognized to date and the income tax recognized in prior interim periods.
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91. What two disclosure guidelines for operating segment information are designed to ensure the consistency of data reported from year to year? 1) If an operating segment does not pass a test for current segment disclosure but was a reportable segment in the past year(s) included in the current comparative report and management deems it as having continued significance, then that segment should be disclosed currently to be comparative to prior periods. 2) If an operating segment is to be disclosed in a current year and was not separately disclosed in prior comparative years, then prior years must be restated to show that segment comparatively with the current year.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Medium Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant separate disclosure.
92. Describe the test to determine whether a sufficient number of operating segments are disclosed. For operating segments deemed reportable by having passed a 10% threshold test of revenues, operating profit or loss, and assets, the total sales revenuesto unaffiliated customers are summed. If this sum is less than 75% of total salesto outsiders, then there is not a sufficient number of operating segments disclosed and there should be additional segment disclosure.
93. What approach is used, according to U.S. GAAP, for determination of how a business is divided into segments? The management approach for segment determination is used.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Easy Learning Objective: 08-01 Understand how an enterprise determines its operating segments and the factors that influence this determination.
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94. According to U.S. GAAP, what general information about an operating segment needs to be disclosed? The general information about an operating segment that needs to be disclosed per U.S. GAAP includes: (1.) Factors used to identify operating segments. (2.) Types of products and services from which each operating segment derives its revenues.
95. According to U.S. GAAP, how should common costs be allocated to individual segments to determine segment profit or loss? U.S. GAAP does not require common costs to be allocated to individual segments to determine segment profit or loss if this is not done for internal purposes. Any allocations that are made must be done on a reasonable basis.
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96. List the five aggregation criteria that need to be considered by management in determining whether business activities and environments are similar. The five aggregation criteria are: (1.) The nature of the products and services provided by each operating segment. (2.) The nature of the production process. (3.) The type or class of customer. (4.) The distribution methods. (5.) If applicable, the nature of the regulatory environment.
97. What is the purpose of the U.S. GAAP seventy-five percent requirement for industry segment disclosure? A substantial portion of the company's operations should be presented in disaggregated form. The seventy-five percent requirement is the GAAP guideline in making sure companies report information about enough segments.
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98. According to U.S. GAAP, what revenues and expenses included in segment profit or loss need to be disclosed? The revenues and expenses included in segment profit or loss that need to be disclosed include: (1.) Revenues from external customers. (2.) Revenues from transactions with other operating segments. (3.) Interest revenue and interest expense (reported separately); net interest revenue may be reported for finance segments if this measure is used internally for evaluation. (4.) Depreciation, depletion, and amortization expense. (5.) Other significant noncash items included in segment profit or loss. (6.) Unusual items (discontinued operations and extraordinary items). (7.) Income tax expense or benefit.
99. What related items need to be disclosed in regard to total segment assets? The related items in regard to total segment assets that need to be disclosed include: (1.) Investment in equity method affiliates. (2.) Expenditures for additions to long-lived assets.
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100. Which items of information are required to be included in interim reports for each operating segment? The items of information that are required to be included in interim reports for each operating segment are: (1.) Revenues from external customers. (2.) Intersegment revenues. (3.) Segment profit or loss. (4.) Total assets, if there has been a material change from the last annual report.
101. Which two items of information must be reported for (1) the domestic country, (2) all foreign countries in which the enterprise derives revenues or holds assets, and (3) each foreign country in which a material amount of revenues is earned? The two items of information are: (1.) Revenues from external customers. (2.) Long-lived assets.
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Knowledge Difficulty: Medium Learning Objective: 08-04 Determine when and what types of information must be disclosed for geographic areas.
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102. Burnside Corp. is organized into four operating segments. The following segment information was generated by the internal reporting system in 2011:
Required: 1) What was the profit or loss of each of these segments? 2) Prepare the profit or loss test to determine which of these segments was separately reportable. Requirements (1) and (2)
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Faru Co. identified five industry segments: (1) plastics, (2) metals, (3) lumber, (4) paper, and (5) finance. Each of these segments had been consolidated appropriately by the company in producing its annual financial statements. Information describing each segment is presented below (in thousands).
103. Prepare the revenue test and determine which of these segments was separately reportable. Revenues include sales to outside parties, intersegment revenues transfers, and interest income.
Reportable segment = at least $1,333.5 (in thousands) of revenues.
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104. Prepare the profit or loss test and determine which of these segments was separately reportable. Revenues include sales to outside parties, intersegment revenues transfers, and interest income. Expenses include operating expenses and interest expense.
Reportable = at least $436.6 (in thousands) of profit or loss.
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105. Prepare the asset test and determine which of these segments was separately reportable. Assets include tangible assets and intangible assets.
Reportable = at least $832. (in thousands) of assets
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106. Blanton Corporation is comprised of five operating segments. Information about each of these segments is as follows (in thousands):
Required: (a.) Which operating segments are reportable under the revenue test? (b.) What is the total amount of revenues in applying the revenues test? (c.) Which operating segments are reportable under the profit or loss test? (d.) In applying the profit or loss test, what is the minimum amount an operating segment must have in order to meet the profit or loss test for a reportable segment? (e.) Which operating segments are reportable under the asset test? (f.) In applying the asset test, what is the minimum amount an operating segment must have in order to meet the asset test for a reportable segment? (g.) Which operating segments are reportable? (h.) According to the test results for reportable segments, is there a sufficient number of reported segments or should any additional segments also be disclosed? Explain the reason for your conclusion.
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h. There are a sufficient number of reportable segments per the reportable tests because total sales to outsiders = $397 (numbers all in thousands), 75% of 397 = $298, and the four reportable segments have total sales to outsiders of $383. $383 exceeds the threshold for the 75% test.
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On February 23, 2011, Cleveland, Inc., paid property taxes of $300,000 for the calendar year 2011.
107. How much of this expense should be included in Cleveland's net income for the quarter ending March 31, 2011? $75,000 [$300,000/4].
108. Prepare the journal entry for the payment of property taxes on February 23, 2011.
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Gregor, Inc., uses the LIFO cost-flow assumption to value inventory. Inventory for Gregor on January 1, 2011 was 100 units at a LIFO cost of $25 per unit. During the first quarter of 2011, 200 units were purchased costing an average of $40 per unit, and sales of 265 units at a retail price of $50 per unit were made.
109. Assuming Gregor does not expect to replace the units of beginning inventory sold, what is the amount of cost of goods sold for the quarter ended March 31, 2011? $9,625 [(200 x $40) + (65 x $25)].
110. Assuming Gregor expects to replace the units of beginning inventory sold before the yearend at a cost of $41, what is the amount of cost of goods sold for the quarter ended March 31, 2011? $10,665 [(200 x $40) + (65 x $41)].
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Harrison Company, Inc. began operations on January 1, 2010, and applied the LIFO method for inventory valuation. On June 10, 2011, Harrison adopted the FIFO method of accounting for inventory. Additional information is as follows:
The LIFO method was applied during the first quarter of 2011 and the FIFO method was applied during the second quarter of 2011 in computing income, above. Harrison's effective income tax rate is 40 percent. Harrison has 500,000 shares of common stock outstanding at all times.
111. Compute the after-tax effect of Harrison's change in inventory method.
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112. Prepare a schedule showing the calculation of net income and earnings per share to be reported by Harrison for the three-month period and the six-month period ended June 30, 2010 and 2011. Net Income and Earnings per Share for 2nd Quarter 2011:
AACSB: Analytic AICPA FN: Measurement Bloom's: Application Difficulty: Hard Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the annual period.
The following information for Urbanski Corporation relates to the three months ending June 30, 2011:
Urbanski uses the LIFO method to account for inventory, and expects at least 15,000 units to be on hand in the ending inventory at year-end. Purchases made in the last six months are expected to cost an average of $18 per unit.
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113. Compute cost of goods sold and gross profit for the quarter ending June 30, 2011. Determination of Cost-of-Goods-Sold and Gross Profit
114. Prepare the journal entries to reflect the sales and cost of goods sold, assuming Urbanski expects to maintain 11,000 units in inventory at year-end. Refer To: 08-114 Journal Entries to Record Sales and Cost-of-Goods-Sold
Excess of replacement cost over historical cost for beginning inventory liquidated: [($18 - $10) x 5,000 units]
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115. Prepare the journal entries to reflect the sales and cost of goods sold, assuming Urbanski does not expect to replace the liquidated inventory at year-end. Refer To: 08-114 Journal Entries to Record Sales and Cost-of-Goods-Sold
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Matching Questions
116. For each of the following situations, select the best answer concerning segment disclosures of reportable segments. 1. Not required to be disclosed by either an operating segment or a geographical segment Factors used to identify segments. 2. Required to be disclosed by an operating segment, but not a geographical segment Revenues from external customers. 3. Required to be disclosed by an Types of products and services from operating segment, but not a which each segment derives its geographical segment revenues. 4. Required to be disclosed by an operating segment, but not a geographical segment Names of major customers. 5. Required to be disclosed by an operating segment, but not a Revenues from transactions with geographical segment other segments. 6. Not required to be disclosed by either an operating segment or a geographical segment Interest revenue. 7. Required to be disclosed by both an operating segment and a geographical segment Long-lived assets. 8. Required to be disclosed by an operating segment, but not a Discontinued operations and geographical segment extraordinary items, when applicable. 9. Required to be disclosed by both an operating segment and a geographical segment Income tax expense or benefit. 10. Required to be disclosed by a geographical segment, but not an operating segment Revenues for the domestic country. 11. Required to be disclosed by an operating segment, but not a geographical segment Cash flow information
AACSB: Reflective thinking AICPA FN: Measurement Bloom's: Comprehension Difficulty: Hard Learning Objective: 08-03 List the basic disclosure requirements for operating segments. Learning Objective: 08-04 Determine when and what types of information must be disclosed for geographic areas.
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Chapter 08 - Segment and Interim Reporting

Chapter 08 Segment and Interim Reporting

A. Option A B. Option B C. Option C D. Option D E. Option E

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

In addition, revenues generated at corporate headquarters are $1,400.

Chapter 08 - Segment and Interim Reporting

12. The Rivers Co. had four separate operating segments:

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

A. Option A B. Option B C. Option C D. Option D E. Option E

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

A. Option A B. Option B C. Option C D. Option D E. Option E

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

87. What is the major objective of segment reporting?

88. What is meant by the term, disaggregated financial information?

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

111. Compute the after-tax effect of Harrison's change in inventory method.

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 Segment and Interim Reporting Answer Key

Multiple Choice Questions

Chapter 08 - Segment and Interim Reporting

A. Option A B. Option B C. Option C D. Option D E. Option E

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

Chapter 08 - Segment and Interim Reporting

In addition, revenues generated at corporate headquarters are $1,400.

Chapter 08 - Segment and Interim Reporting

12. The Rivers Co. had four separate operating segments: