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Quiz 9 Chapter
14
Reporting for
Segments and for Interim Financial Periods
1. A component of an enterprise that may
earn revenues and incur expenses, and about which management evaluates separate
financial information in deciding how to allocate resources and assess
performance is a(n)
a. identifiable
segment.
b. operating segment.
c. reportable segment.
d. industry segment.
2. An entity is permitted to aggregate
operating segments if the segments are similar regarding the
a. nature of the production processes.
b. types or class of customers.
c. methods used to distribute products or
provide services.
d. all of these.
3. Which of the following is not a segment
asset of an operating segment?
a. Assets used jointly by more than one segment.
b. Assets directly associated with a segment.
c. Assets maintained for general corporate
purposes.
d. Assets used exclusively by a segment.
4. SFAS No. 131 requires the disclosure of information
on an enterprise's operations in different industries for
1. each annual period presented.
2. each interim period presented.
3. the current period only.
a. 1
b. 2
c. 3
d. both 1 and 2
5. Which of the following is not required
to be disclosed by SFAS No. 131?
a. Information concerning the enterprise's
products.
b. Information related to an enterprise's
foreign operations.
c. Information related to an enterprise's major
suppliers.
d. All of the above are required disclosures.
6. To determine whether a substantial
portion of a firm's operations are explained by its segment information, the
combined revenue from sales to unaffiliated customers of all reportable
segments must constitute at least
a. 10% of the combined revenue of all operating
segments.
b. 75% of the combined revenue of all operating
segments.
c. 10% of the combined revenue from sales to
unaffiliated customers of all operating segments.
d. 75% of the combined revenue from sales to
unaffiliated customers of all operating segments.
7. A segment is considered to be
significant if its
1. reported profit is at least 10% of the
combined profit of all operating segments.
2. reported profit (loss) is at least 10% of the
combined reported profit of all operating segments not reporting a loss.
3. reported profit (loss) is at least 10% of the
combined reported loss of all operating segments that reported a loss.
a. 1
b. 2
c. 3
d. both 2 and 3
8. Which of the following disclosures is
not required to be presented for a firm's reportable segments?
a. Information about segment assets
b. Information about the bases for measurement
c. Reconciliation of segment amounts and
consolidated amounts for revenue, profit or loss, assets, and other significant
items.
d. All of these must be presented.
9. Current authoritative pronouncements
require the disclosure of segment information when certain criteria are met.
Which of the following reflects the type of firm and type of financial
statement for which this disclosure is required?
a. Annual financial statements for publicly held
companies.
b. Annual financial statements for both publicly
held and nonpublicly held companies.
c. Annual and interim financial statements for
publicly held companies.
d. Annual and interim financial statements for
both publicly held and nonpublicly held companies.
10. An enterprise determines that it must
report segment data in annual reports for the year ended December 31, 2011.
Which of the following would not be an acceptable way of reporting segment
information?
a. Within the body of the financial statements,
with appropriate explanatory disclosures in the footnotes
b. Entirely in the footnotes to the financial
statements.
c. As a special report issued separately from
the financial statements.
d. In a separate schedule that is included as an
integral part of the financial statements.
11. Selected data for a segment of a business
enterprise are to be separately reported in accordance with SFAS No. 131 when
the revenues of the segment is 10% or more of the combined
a. net income of all segments reporting profits.
b. external and internal revenue of all
reportable segments.
c. external revenue of all reportable segments.
d. revenues of all segments reporting profits.
12. Long Corporation's revenues for the year
ended December 31, 2011, were as follows
Consolidated revenue per income statement $800,000
Intersegment sales 105,000
Intersegment transfers 35,000
Combined revenues of all operating
segments $940,000
Long has a
reportable segment if that segment's revenues exceed
a. $80,000.
b. $90,500.
c. $94,000.
d. $14,000.
13. Revenue
test
(dollars in thousands)
Wholesale Retail Finance
Segment Segment Segment
Sales
to unaffiliated customers $3,600 $1,500 $-0-
Sales
– intersegment 400 240 -0-
Loan
interest income – intersegment -0-
120 900
Loan
interest income – unaffiliated -0- 240 80
Income
from equity method investees -0- 280 -0-
Determine the amount of revenue for each
of the three segments that would be used to identify the reportable industry
segments in accordance with the revenues test specified by SFAS 131.
Wholesale Retail Finance
a. $3,600 $1,500 $ -0-
b. 4,000 1,740 -0-
c. 4,000 1,980 980
d. 4,000 2,380 980
14. Which of the following is not part of the
information about foreign operations that is required to be disclosed?
a. Revenues from external customers
b. Operating profit or loss, net income, or some
other common measure of profitability
c. Capital expenditures
d. Long-lived assets
15. Eaton, Inc., discloses supplemental
industry segment information. The following data are available for 2011.
Traceable
Segment Sales operating expenses
A $420,000 $255,000
B 480,000 300,000
C
300,000 165,000
$1,200,000 $720,000
Additional 2011
expenses, not included above, are as follows:
Indirect operating
expenses $240,000
General
corporate expenses 180,000
Appropriate common expenses are
allocated to segments based on the ratio of a segment's sales to total sales.
What should be the operating profit for Segment C for 2011?
a. $135,000
b. $ 75,000
c. $ 105,000
d. $ 30,000
16. Gant Company has four manufacturing
divisions, each of which has been determined to be a reportable segment. Common
operating costs are appropriately allocated on the basis of each division's
sales in relation to Gant’s aggregate sales. Gant’s Delta division accounted
for 40% of Gant's total sales in 2011. For the year ended December 31, 2011,
Delta had sales of $5,000,000 and traceable costs of $3,600,000. In 2011, Gant
incurred operating costs of $350,000 that were not directly traceable to any of
the divisions. In addition, Gant incurred interest expense of $360,000 in 2011.
In reporting supplementary segment information, how much should be shown as
Delta's operating profit for 2011?
a. $1,400,000
b. $1,256,000
c. $1,260,000
d. $1,116,000
17. For external reporting purposes, it is
appropriate to use estimated gross profit rates to determine the ending
inventory value for
Interim Annual
Reporting Reporting
a. No No
b. No Yes
c. Yes No
d. Yes Yes
18. Inventory losses from market declines
that are expected to be temporary
a. should be recognized in the interim period in
which the decline occurs.
b. should be recognized in the last (fourth)
quarter of the year in which the decline occurs.
c. should not be recognized.
d. none of these.
19. Gains and losses that arise in an interim
period should be
a. recognized in the interim period in which
they arise.
b. recognized in the last quarter of the year in
which they arise.
c. allocated equally among the remaining interim
periods.
d. deferred and included only in the annual
income statement.
20. If a cumulative effect type accounting
change is made during the first interim period of a year
a. no cumulative effect of the change should be
included in net income of the period of change.
b. the cumulative effect of the change on
retained earnings at the beginning of the year should be included in net income
of the first interim period.
c. the cumulative effect of the change should be
allocated to the current and remaining interim periods of the year.
d. none of these.
21. Which of the following does not have to
be disclosed in interim reports?
a. Seasonal costs or expenses.
b. Significant changes in estimates.
c. Disposal of a segment of a business.
d. All of these must be disclosed.
22. For interim financial reporting, the
effective tax rate should reflect
Anticipated Extraordinary
Tax Credits Items
a. Yes Yes
b. Yes No
c. No Yes
d. No No
23. Companies using the LIFO method may
encounter a liquidation of base period inventories at an interim date that is
expected to be replaced by the end of the year. In these cases, cost of goods
sold should be charged with the
a. cost of the most recent purchases.
b. average cost of the liquidated LIFO base.
c.
expected
replacement cost of the liquidated LIFO base.
d.
none
of these.
24. In considering interim financial
reporting, how did the Accounting Principles Board conclude that each reporting
should be viewed?
a. As a "special" type of reporting
that need not follow generally accepted accounting principles.
b. As useful only if activity is evenly spread
throughout the year so that estimates are unnecessary.
c. As reporting for a basic accounting period.
d. As reporting for an integral part of an
annual period.
25. When a company issues interim financial
statements, extraordinary items should be
a. allocated to the current and remaining
interim periods of the current year on a pro rata basis.
b. deferred and included only in the annual
income statement.
c. included in the determination of net income
in the interim period in which they occur.
d. charged or credited directly to retained
earnings so that comparisons of interim results of operations will not be
distorted.
26. If annual major repairs made in the first
quarter and paid for in the second quarter clearly benefit the entire year,
when should they be expensed?
a. An allocated portion in each of the last
three quarters
b. An allocated portion in each quarter of the
year
c. In full in the first quarter
d. In full in the second quarter
27. During the second quarter of 2011, Dodge
Company sold a piece of equipment at a gain of $90,000. What portion of the
gain should Dodge report in its income statement for the second quarter of
2011?
a. $90,000
b. $45,000
c. $30,000
d. $ -0-
28. In January 2011, Abel Company paid
$200,000 in property taxes on its plant for the calendar year 2011. Also in
January 2011, Abel estimated that its year-end bonuses to executives for 2011
would be $800,000. What is the amount of expenses related to these two items that
should be reflected in Abel's quarterly income statement for the three months
ended June 30, 2011 (second quarter)?
a. $ -0-
b. $250,000
c. $ 50,000
d. $200,000
29. For interim financial reporting, a
company's income tax provision for the second quarter of 2011 should be
determined using the
a. statutory tax rate for 2011.
b. effective tax rate expected to be applicable
for the full year of 2011 as estimated at the end of the first quarter of 2011.
c. effective tax rate expected to be applicable
for the full year of 2011 as estimated at the end of the second quarter of
2011.
d. effective tax rate expected to be applicable
for the second quarter of 2011.
30. Which of the following reporting
practices is permissible for interim financial reporting?
a. Use of the gross profit method for interim
inventory pricing.
b. Use of the direct costing method for
determining manufacturing inventories.
c. Deferral of unplanned variances under a
standard cost system until year-end.
d. Deferral of inventory market declines until
year-end.
31. Which of the following statements most
accurately describes interim period tax expense?
a. The best estimate of the annual tax rate
times the ordinary income (loss) for the quarter.
b. The best estimate of the annual tax rate
times income (loss) for the year to date less tax expense (benefit) recognized
in previous interim periods.
c. Average tax rate for each quarter, including
the current quarter, times the current income (loss).
d. The previous year's actual effective tax rate
times the current quarter's income.
32. The computation of a company's third
quarter provision for income taxes should be based upon earnings
a. for the quarter at an expected annual
effective income tax rate.
b. for the quarter at the statutory rate.
c. to date at an expected annual effective
income tax rate less prior quarters' provisions.
d.
to
date at the statutory rate less prior quarters' provisions.
33. Finney, a calendar year company, has the
following income before income tax provision and estimated effective annual
income tax rates for the first three quarters of 2011:
Income
Before Estimated Effective
Income
Tax Annual Tax Rate
Quarter Provision at
the End of Quarter
First $120,000 25%
Second 160,000 25%
Third 200,000 30%
Finney's income
tax provision in its interim income statement for the third quarter should be
a. $74,000.
b. $60,000.
c. $50,000.
d. $144,000.
34. An inventory loss from a market price
decline occurred in the first quarter. The loss was not expected to be restored
in the fiscal year. However, in the third quarter the inventory had a market
price recovery that exceeded the market decline that occurred in the first
quarter. For interim reporting, the dollar amount of net inventory should
a. decrease in the first quarter by the amount
of the market price decline and increase in the third quarter by the amount of
the market price recovery.
b. decrease in the first quarter by the amount
of the market price decline and increase in the third quarter by the amount of
the decrease in the first quarter.
c. not be affected in the first quarter and
increase in the third quarter by the amount of the market price recovery that
exceeded the amount of the market price decline.
d. not be affected in either the first quarter
or the third quarter.
35. Advertising costs may be accrued or
deferred to provide an appropriate expense in each period for
Interim Annual
Reporting Reporting
a. Yes No
b. Yes Yes
c. No No
d. No Yes
Problems
14-1 The following information is available for
Torrey Company for 2011:
a. In early April Torrey made major repairs to
its equipment at a cost of $90,000. These repairs will benefit the remainder of
2011 operations.
b. At the end of May, Torrey sold machinery with
a book value of $35,000 for $45,000.
c. An inventory loss of $60,000 from market
decline occurred in July. In the fourth quarter the inventory had a market
value recovery that exceeded the market decline by $30,000.
Required:
Compute the amount of expense/loss that
would appear in Torrey Company's June 30, September 30, and December 31, 2011,
quarterly financial statements.
14-2 Stein Corporation's operations involve
three industry segments, X, Y, and Z. During 2011, the operating profit (loss)
of each segment was:
Operating
Segment Profit (Loss)
X $ 600
Y 8,100
Z (6,300)
Required:
Determine which of the segments are
reportable segments.
14-3 Bass Industries operates in four different
industries. Information concerning the operations of these industries for the
year 2011 is:
Revenue
Industry Operating Segment
Segment Total Intersegment Profit
(Loss) Assets
A $ 24,000 $4,200 $ 2,700 $
22,400
B 18,000 2,200 (2,000) 25,200
C 90,000 14,000 3,600 70,000
D 168,000 -0- 23,700
162,400
$300,000 $28,000 $280,000
Required:
Complete the following schedule to
determine which of the above segments must be treated as reportable segments.
10% Test For
Segment Revenue Op. Profit (Loss) Segment
Assets Reportable?
A
B
C
D
14-4 Logan Company prepares quarterly financial statements.
The following information is available concerning calendar year 2011:
Estimated
full-year earnings $3,000,000
Full-year
permanent differences:
Penalty for
pollution 150,000
Estimated
dividend income exclusion 60,000
Actual pretax
earnings, 1/1/11 to 3/31/11 480,000
Nominal income
tax rate 40%
Required:
Compute the income tax provision for the
first quarter of 2011.
14-5
XYZ
Corporation has eight industry segments with sales, operating profit and loss,
and identifiable assets at and for the year ended December 31, 2011, as
follows:
|
|
Sales to Unaffiliated Customers
|
Sales to Affiliated Customers
|
Profit or (Loss)
|
Segment
Assets
|
|
Steel
|
$1,350,000
|
$150,000
|
$265,000
|
$2,250,000
|
|
Auto Parts
|
1,200,000
|
---
|
450,000
|
1,430,000
|
|
Coal Mine
|
600,000
|
450,000
|
(300,000)
|
1,200,000
|
|
Textiles
|
530,000
|
220,000
|
150,000
|
750,000
|
|
Paint
|
1,120,000
|
380,000
|
300,000
|
1,050,000
|
|
Lumber
|
710,000
|
---
|
(75,000)
|
600,000
|
|
Leisure Time
|
690,000
|
---
|
110,000
|
450,000
|
|
Electronics
|
600,000
|
---
|
300,000
|
670,000
|
|
Total
|
$6,800,000
|
$1,200,000
|
$1,200,000
|
$8,400,000
|
Required:
A.
Identify the segments, which are reportable segments
under one or more of the 10 percent revenue, operating profit, or assets tests.
B.
After reportable segments are determined under the
10 percent tests, they must be reevaluated under a 75 percent revenue test
before a final determination of reportable segments can be made. Under this 75
percent test, identify if any other segments may have to be reported.
14-6
Ace Company, which uses the FIFO inventory method,
had 508,000 units in inventory at the beginning of the year at a FIFO cost per
unit of $20. No purchases were made during the year. Quarterly sales
information and end-of-quarter replacement cost figures follow:
End-of-
Quarter
Quarter Unit Sales Replacement Cost
1 200,000 $17
2 60,000 18
3 85,000 13
4 61,000 18
The market decline in
the first quarter was expected to be nontemporary. Declines in other quarters
were expected to be permanent.
Required:
Determine cost of goods sold
for the four quarters and verify the amounts by computing cost of goods sold
using the lower-of-cost-or-market method applied on an annual basis.
14-7 Barr Company’s actual
earnings for the first two quarters of 2011 and its estimate during each quarter
of its annual earnings are:
Actual
first-quarter earnings $ 800,000
Actual
second-quarter earnings 1,020,000
First-quarter
estimate of annual earnings 2,700,000
Second-quarter
estimate of annual earnings 2,830,000
Barr Company estimated
its permanent differences between accounting income and taxable income for 2011
as:
Environmental
violation penalties $ 45,000
Dividend
income exclusion 320,000
These estimates did not
change during the second quarter. The combined state and federal tax rate for
Barr Company for 2011 is 40%.
Required:
Prepare journal entries
to record Barr Company’s provisions for income taxes for each of the first two
quarters of 2011.
Short Answer
1. In SFAS No. 131, the FASB
requires all public companies to report a variety of information for reportable
segments. Define a reportable segment and identify the information to be
reported for each reportable segment.
2. Publicly owned companies
are usually required to file some type of quarterly (interim) report as part of
the agreement with the stock exchanges that list their stock. Indicate two
problems with interim reporting and GAAP’s position on this reporting.
Short Answer
Questions from the Textbook
1.
For what types of companies would segmented
financial reports have the most significance? Why?
2. Why do
financial statement users (financial analysts, for example) need information
about seg- ments of a firm?
3. Define the following: (a)Operating segment.(b)Reportable segment.
4. Describe the guidelines to be used in determining
(a) what constitutes an operating segment, and (b) whether a specific operating
segment is a significant segment.
5. List the three major types of enterprise wide
information disclosures required by SFAS No. 131[ASC 280], and explain how the
firm’s designation of reportable segments affects these disclosures.
6. What segmental disclosures are required, if any, for interim reports?
7. What type of disclosure is required of a firm
when the major portion of its operations takes place within a single reportable
segment?
8. List the types of information that must be
presented for each reportable segment of a com-pany under the rules of SFAS No.
131 [ASC 280].
9. Describe the methods that might be used to disclose reportable segment
information.
10. What types of information must be disclosed
about foreign operations under SFAS No. 131[ASC 280–10–50–40]?
11. How are foreign operations defined under SFASNo. 131 [ASC 280]?
12. If the operations of a firm in some foreign
countries are grouped into geographic areas, what factors should be considered
in forming the groups?
13. When must a firm present segmental disclosures
for major customers? What is the reason for this requirement?
14. How are common costs distinguished from general
corporate expenses for segmental purposes?
15. What is the purpose of interim financial reporting?
16. Some accountants hold the view that each interim
period should stand alone as a basic ac-counting period, whereas others view
each interim period as essentially an integral part of the annual period.
Distinguish between these views.
17.Describe the basic procedure for computing
in-come tax provisions for interim financial state-ments.
18.Describe how changes in estimates should be
treated in interim financial statements.
19.What are the minimum disclosure requirements
established ASC 270 for interim financial reports?
20.What is the general rule regarding the treatment
of costs and expenses associated directly with revenues for interim reporting
purposes?
Business Ethics Question from Textbook
SMC Inc.
operates restaurants based on various themes, such as Mex-delight, Chinese for
the Buffet, and Steak-it and Eat-it. The Steak-it and Eat-it restaurants have
not been performing well recently, but SMC prefers not to disclose these
details for fear that competitors might use the information to the detriment of
SMC. The restaurants are located in various geographical locations, and
management currently measures profits and losses and asset allocation by
restaurant concept. How-ever, when preparing the segmental disclosures under
SFAS No. 131 [ASC 280], the company reports the segment information by
geographical location only. The company recently hired you to review the
financial statements.
1.What disclosures should the company report for
segment purposes?
2.The company’s CEO
believed that the rules in SFAS No. 131 [ASC 280] are vague and that the
company could easily support its decision to dis-close the segment data by
geographic regions. What would you recommend to the CEO and how would you
approach the issues?
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