45.

Ridge Company is in the process of determining its reportable segments for the year ended December 31, 2008. As the
person responsible for determining this information, you gather the following information:

Required:
a) Using the appropriate tests, determine which of the industry segments listed above are reportable for 2008. Show your
supporting computations in good form.
b) Indicate whether or not Ridge's reportable segments satisfy the 75 percent test. Show your supporting computations in good
form.

Conclusions from the tests:

1. Operating segments A, L, and R satisfy the revenue test.
2. Operating segments A, L, R, and Z satisfy the segment profit (loss) test.
3. Operating segments A, R, and Z satisfy the identifiable assets test.
Conclusion:
Segments A, L, R, and Z are reportable segments while segments M and S are not.
b) The 75 percent test is calculated as follows:

Conclusion: The 75 percent revenue test is satisfie20. Collins Company reported consolidated revenue of $120,000,000 in 2008.
Collins operates in two geographic areas, domestic and Asia. The following information pertains to these two areas:

What calculation below is correct to determine if the revenue test is satisfied for the Asian operations?
A. $58,000,000/$140,000,000
B. $50,000,000/$120,000,000
C. $58,000,000/$120,000,000
D. $50,000,000/$140,000,000
An analysis of Abbey Company's operating segments provides the following information:

21. Refer to the above information. Which of the operating segments above meet the revenue test?
A. B, D, and E
B. A and D
C. A, B, and D
D. B, C, D, and E
22. Refer to the above information. Which of the operating segments above meet the operating profit (loss) test?
A. B and E
B. A and B
C. A, B, and E
D. A, B, C, and E
23. Refer to the above information. Which of the operating segments above are reportable segments?
A. B, C, and D
B. A, B, D, and E
C. B, D, and E
D. A, B, C, D, and E
4. Crisfield Company has two reportable segments, C and D. Segment C made $4,000,000 of sales to external customers and
$400,000 of sales to other operating segments. Segment D, on the other hand, made sales of $8,000,000 to external customers
and $1,600,000 of sales to other operating segments. Crisfield Company reported $13,200,000 of revenues on its consolidated
income statement. What calculation below correctly determines whether Crisfield Company's reportable segments satisfy the
75% revenue test?
A. $14,000,000/$15,200,000
B. $14,000,000/$13,200,000
C. $12,000,000/$13,200,000
D. $12,000,000/$15,200,000
25. Zeus Corporation has determined that it has 15 reportable operating segments. In order to comply with the standard for
segment disclosures, Zeus Corporation should do which of the following?
A. Report 10 reportable segments and disclose the remaining 5 segments as other operating segments.
B. Report 10 reportable segments by combining the most closely related segments.
C. Report 15 reportable segments as long as the 75 percent revenue test has been satisfied.
D. Report 12 reportable segments and show all other operating segments in a column labeled "Other Operating Segments."
26. FASB 131 requires certain disclosures about major customers. All of the following statements about those disclosures are
true with the exception of which statement?
A. The identity of the segment reporting the revenue from a significant customer must be disclosed a footnote.
B. The amount of revenue from a significant customer must be disclosed in a footnote.
C. For applying the disclosure test a threshold of 10 percent of total revenues is mandated.
D. A local, state, or foreign government can be considered a major customer.
27. The management approach to the definition of segments for financial reporting expects a company to:
I. Report disaggregated information on the same organizational basis as used by the company's internal decision makers.
II. Report disaggregated information for at least ten segments.
A. I
B. II
C. Both I and II
D. Neither I nor II
28. Main Manufacturing Corporation
reported consolidated revenues of $50,000,000 on its income statement for 2008. The management of the corporation identified
3 industry segments, M, N, and O. These segments had the following intersegment sales and transfers during 2008:

For Main Manufacturing Corporation, the revenue test would be satisfied if any of its industry segments had revenue equal to or
greater than which of the following?
A. $7,400,000
B. $5,740,000
C. $5,000,000
D. $4,260,00029. Stone Company reported $100,000,000 of revenues on its 2008 income statement. During the year ended
December 31, 2008, Stone made sales of $8,000,000 to external customers in Western Europe. In addition, Stone made sales of
$10,000,000 to the U.S. government and $4,000,000 of sales to various state governments. In the footnotes to its financial
statements for 2008, in reporting enterprisewide disclosures, Stone is required to disclose:

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

29. In 2006 and 2007, each of Putney Company's four operating segments met one of the three quantitative tests for segment
reporting. In 2008, Segment B failed to qualify under the prescribed tests because of abnormal financial conditions. The other
three segments qualified for reporting. For 2008, Segment B:
A. should be excluded from segment disclosure but referred to in the management letter to shareholders.
B. should be distinctly separated from the other three segments and listed as a "nonqualifying" segment.
C. should be combined with one of the other three segments and reported.
D. should be included in the segment disclosures at the discretion of management.
17. Five of eight internally reported operating segments of Rollins Company qualify under the standards set by FASB 131 for
segment reporting. However, the five identified segments do not meet the 75 percent revenue test. FASB 131 prescribes that
management:
A. subdivide segments until there are at least 10 reportable segments.
B. consolidate the remaining operating segments and include them under an "all other" category.
C. select additional operating segments until the 75% threshold is met.
D. include the heading "corporate headquarters" as an operating segment.
10. Trimester Corporation's revenue for the year ended December 31, 2008, was as follows:

Trimester has a reportable operating segment if that segment's revenue exceeds:

A. $65,500
B. $60,000
C. $64,500
D. $61,000
8. Trevor Company discloses supplementary operating segment information for its three reportable segments. Data for 2008 are
available as follows:

Additional 2008 expenses include indirect operating expenses of $200,000. Appropriately selected common indirect operating
expenses are allocated to segments based on the ratio of each segment's sales to total sales. The 2008 operating profit for
Segment B was:
A. $180,000
B. $120,000
C. $150,000
D. $250,000
9. Trevor Company discloses supplementary operating segment information for its three reportable segments. Data for 2008 are
available as follows:

Allocable costs for the year was $180,000. Allocable costs are assigned based on the ratio of a segment's income before
allocable costs to total income before allocable costs. The 2008 operating profit for Segment B was:
A. $110,000
B. $180,000
C. $126,000
D. $120,000
1.

Similar operating segments may be combined if the segments have similar economic characteristics.
Which one of the following is a similar economic characteristic under SFAS 131?
a. The segments management teams.
b. The tax reporting law sections.
c. The distribution method for products or services.
d. The expected rates of return and risk for the segments productive assets.
2.
Which of the following conditions would not indicate that two business segments should be
classified as a single operating segment?
a. They have similar amounts of intersegment revenues or expenses.
b. They have a similar distribution of products.
c. They have similar production processes.
d. They have similar products or services.

3.

4.

5.

6.

7.

8.

9.

10.

11.

SFAS 131 requires that segment information be reported by the process that management has
organized the enterprise for
I. performance evaluation
II.internal decision making
III.geographic region
a. Only I meets the standard.
b. Only II meets the standard.
c. Both I and II meet the standard.
d. All three meet the standard.
SFAS 131 requires the disclosures for each of the following, except for
a. Revenues.
b. Depreciation.
c. R&D expenditures.
d. Discontinued operations.
What is the threshold for reporting a major customer?
a. 5 percent of revenues.
b. 5 percent of profits.
c. 10 percent of revenues.
d. 10 percent of profits.
Pratincole has the following 2005 financial data:
Consolidated revenue per income statement $1,800,000
Intersegment sales
270,000
Intersegment transfers
120,000
Combined revenues of all segments
2,190,000
Pratincole should add segments if
a. the sum of its segments external revenue does not exceed 1,350,000
b. the sum of its segments external revenue does not exceed 1,620,000
c. the sum of its segments revenue including intersegment revenue does not exceed 1,643,000
d. the sum of its segments revenue including intersegment revenue does not exceed 1,971,000
Which of the following is not a quantitative threshold for defining a segments materiality?
a. Segment assets are 10% or more of the combined assets of all operating segments.
b. The segment absolute value of its profit or loss is 10% or more of the greater of (1) the
combined reported profit of all operating segments that reported a profit or (2) the absolute
value of the combined reported loss of all operating segments that reported a loss.
c. Segment reported revenue, including intersegment revenues, is 10% or more of the
combined revenue of all operating segments.
d. Segment residual profit after the cost of equity is 10% or more of the combined residual
profit of all operating segments.
For an operating segment to be considered a reporting segment under the reported revenue
threshold, its reported revenue must be 10% or more of
a. the combined enterprise revenues, eliminating all relevant intracompany transfers and
balances.
b. the combined revenues, excluding intersegment revenues, of all operating segments.
c. the combined revenues, including intersegment revenues, of all operating segments.
d. the consolidated revenue of all operating segments.
An enterprise has eight reporting segments. Five segments show an operating profit and three
segments show an operating loss. In determining which segments are classified as reporting
segments under the reported profits test, which of the following statements is correct?
a. The test value for all segments is 10% of consolidated net profit.
b. The test value for profitable segments is 10% or more of those segments reporting a profit,
and the test value for loss segments is 10% or more of those segments reporting a loss.
c. The test value for loss segments is 10% of the greater of (a) the absolute value of the sum of
those segments reporting losses, or (b) 10% of consolidated net profit.
d. The test value for all segments is 10% of the greater of (a) the absolute value of the sum of
those segments reporting profits, or (b) the absolute value of the sum of those segments
reporting losses.
Dotteral Corporation experienced a $100,000 extraordinary loss in the second quarter of 2006 in
their bird operating segment. The loss should be recognized
a. only at the consolidated report level at the end of the year.
b. entirely in the second quarter of 2006 in the bird operating segment.
c. in equal amounts allocated to the remaining three quarters of 2006 at the corporate level.
d. in equal amounts allocated to the remaining three quarters of 2006 of the bird segment.
Which one of the following operating segment disclosures is not required by SFAS 131?
a. Assets.
b. Equity.
c. Intersegment sales.

d. Extraordinary items.
Which one of the following operating segment information items is not directly named by SFAS
131 to be reconciled to consolidated totals?
a. Assets.
b. Liabilities.
c. Revenues.
d. Profit or loss.
13.
Which one of the following items does SFAS 131 require to be disclosed by geographic area?
a. External revenues.
b. External and intersegment revenues.
c. Profit or loss.
d. Total assets.
Exercise 1
12.

The accountant for Oyster Corporation has assigned most of the companys assets to its three segments as
follows:
Motion pictures
Communications
Publishing
Total

1,520,000
2,400,000
320,000
4,240,000

The unassigned assets consist of $640,000 of unallocated goodwill and $240,000 of assets attached to the corporate
headquarters. For internal decision-making purposes, goodwill is not assigned to the segments and the assets assigned to the
corporate headquarters are allocated equally to the operating segments.
Required:
1. What is the proper threshold value to use in determining
operating segments shown above are reporting segments?

which

of

the

2. Which of the operating segments are considered reporting segments?

Requirement 1
SFAS 131 allows the assets of the corporate headquarters to be included in the
segments if the assets are included in the measure of the segments assets that are
reviewed by the chief operating decision maker. This interpretation would justify
the exclusion of goodwill and inclusion of the corporate headquarters assets. The
threshold value would be 10% times the sum of ($4,240,000 + $240,000) or $448,000.
Requirement 2
Using
the
criterion
established
in
Requirement
1,
Motion
Pictures
and
Communications would both be considered reporting segments. Publishing would not be
a reporting segment because it falls below the $448,000 threshold value. ($320,000
+ $240,000/3 = $400,000).
Exercise 2
For internal decision-making purposes, Crane Corporations operating segments have been identified as follows:
Operating
Identifiable
Profit
Assets
Operating Segment
Revenues
or Loss
Appliances
Clothing
Lawn and Garden
Auto Accessories
Service Contracts
Catalog Sales
Home Furnishings
Tools

100,000
120,000
92,000
110,000
55,000
200,000
300,000
250,000
1,227,000

(
(
(

20,000
70,000
5,000
12,000
5,000
11,000
20,000
24,000
23,000

)
)

60,000
50,000
15,000
22,000
10,000
50,000
100,000
25,000
332,000

Required:
1. In applying the reported profit or loss test to identify reporting
segments, what is the test value for Crane Corporation?

2. Using the "reported profit or loss" test, which of Crane's operating

segments will also be reporting segments?
Requirement 1
If the absolute value of the loss segments, $95,000, is more than the absolute
value of the profitable segments, $72,000, the absolute value of the loss
segments, when multiplied by 10%, would become the test value for each segment.
The $95,000 is multiplied by 10% to get $9,500, which is the test value for both
the profitable and loss segments.
Requirement 2
Based on the answer to Requirement 1, Lawn and Garden and Service Contracts are
not considered reporting segments. All of the other segments would be reporting
segments because the absolute value of their profit or loss is more than $9,500.
Exercise 3
The following data relate to Plover Corporations industry segments:
Sales to
External
Customers

Industry Segment
Oil Exploration
Refinery
Plastics
Chemicals
Solar Power
Totals

40,000
120,000
10,000
110,000
10,000
290,000

Intersegment
Sales

Segment
Assets
$

10,000
80,000
36,000
126,000

156,000
360,000
60,000
570,000
138,000
1,284,000

Required:
1. Which of Plover's operating segments would be considered reporting segments
under the revenue test?
2. Which of Plover's operating segments would be considered reporting segments
under the asset test?
Requirement 1
The test value is 10% of the combined revenues of all operating segments including
intersegment revenues, or, 10% x $416,000 or $41,600. Based on this test value,
Refinery, Chemicals, and Solar Power would be the reporting segments because each of
these segments has more than $41,600 in total sales.
Requirement 2
The test value is 10% of the combined identifiable assets or 10% x $1,284,000 or
$1,284. Based on this test value, Oil Exploration, Refinery, Chemicals, and Solar
Power would be the reporting segments because each of these segments has more than
$1,284 in segment assets.
Exercise 4
For internal decision-making purposes, Falcon Corporation identifies its industry segments by geographical area. For 2006,
the total revenues of each segment are provided below. There are no intersegment revenues.
Total
Revenues
Canada
$
22,000,000
United States
76,000,000
Mexico
10,000,000
South America
9,000,000
China
2,000,000
Russia
1,500,000
Australia
3,000,000
European Union
12,000,000
Other European
14,000,000
Total revenues
$
149,500,000
Required:

1. Which operating segments will be considered reporting segments based on the

revenue test?
2. What is the test value for determining whether a sufficient number of segments
are reported?
3. What will be the minimum number of segments that must be reported?
Requirement 1
The reporting segments will be those segments whose segment revenue is 10% or more
of the combined revenues of all operating segments. The total combined revenue of
the operating segments is $149,500,000 and 10% of that number is $14,950,000. Only
Canada and the United States will satisfy the 10% revenue test.
Requirement 2
The appropriate test value is the 75% of consolidated revenues test which is
$112,125,000 ($149,500,000 x 75%).
Requirement 3
Canada and the United States must be included and will account for $98,000,000 of
the minimum $112,125,000. A minimum of two additional segments must be added in
order to surpass the 75% consolidated revenue test since no one segment can
contribute the remaining shortfall of $14,125,000. Therefore, the minimum number of
segments is four.
Exercise 5
The following data relate to Crake Corporations industry segments. (Crake HQ represents the corporate
headquarters). All other segments are geographical sales segments.
Attribute
External sales
Intersegment
Sales
Expenses
Assets assigned
Income from
Equity investee

Europe
35,000 $

Russia
24,000 $

China
33,000 $

2,000
27,000
20,000

1,000
18,000
22,000

4,000
29,000
30,000

Japan
0 $
0
5,000
14,000

Crake HQ
0
0
12,000
15,000
5,000

Required:
1. Prepare a report which reconciles the reportable segment profits to
total consolidated profits assuming that corporate expenses are not
allocated to the operating segments.
2. Prepare a report which reconciles the reportable segment profits to
total consolidated profits assuming that corporate expenses are
allocated evenly among the operating segments.
Requirement 1
Total profit or loss for reportable segments
Europe:($35,000 + $2,000 - $27,000) = $10,000
Russia:($24,000 + $1,000 - $18,000) = 7,000
China:($33,000 + $4,000 - $29,000) = 8,000
Plus: Income from equity investee
Less: Intersegment revenues
Less: Headquarters expenses + Japans expenses
Equals: Consolidated net income

25,000
(
(

5,000
7,000 )
17,000 )
6,000

Requirement 2
Total profit or loss for reportable segments
Europe:($35,000 + $2,000 - $27,000 - $4,000) +
Russia:($24,000 + $1,000 - $18,000 - $4,000) +
China:($33,000 + $4,000 - $29,000 - $4,000) =
Plus: Income from equity investee
Less: Intersegment revenues
Less: Japans expenses
Equals: Consolidated net income

$
(
(
$

13,000
5,000
7,000 )
5,000 )
6,000