Segment Reporting

Which of the following types of entities are required to report on business segments? A. Nonpublic business enterprises B. Publicly traded enterprises C. Not-for-profit enterprises D. Joint ventures

B. Publicly traded enterprises FAS No. 131 requires that a public business enterprise report financial and descriptive information about its reportable operating segments.

In financial reporting of segment data, which of the following must be considered in determining if an industry segment is a reportable segment? Sales to unaffiliated customers Intersegment sales Yes Yes Yes No No Yes No No

Yes Yes There are three possible quantitative tests to determine if a segment is reportable. If one or more of the tests is met, the segment is reported. One of these tests is the revenue test. This test determines if the segment's revenue, which includes both sales to external (unaffiliated customers) and intersegment sales, is 10% or more of the combined revenue of all the company's operating segments. Therefore, both items are considered.

Opto Co. is a publicly traded, consolidated enterprise reporting segment information. Which of the following items is a required enterprise-wide disclosure regarding external customers? A. The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues B. The identity of any external customer providing 10% or more of a particular operating segment's revenue C. The identity of any external customer considered to be "major" by management D. Information on major customers is not required in segment reporting.

A. The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues This is one of the disclosures required in FAS 131. The identity of the customer does not need to be disclosed, but the segment reporting the revenue must be identified. Such a segment would meet one of the three quantitative thresholds for reporting segment information. The three thresholds are 10% of revenue, income, and assets.

What information should a public company present about revenues from foreign operations? A. Disclose separately the amount of sales to unaffiliated customers and the amount of intracompany sales between geographical areas. B. Disclose as a combined amount sales to unaffiliated customers and intracompany sales between geographical areas. C. Disclose separately the amount of sales to unaffiliated customers but not the amount of intracompany sales between geographical areas. D. No disclosure of revenues from foreign operations needs to be reported.

A. Disclose separately the amount of sales to unaffiliated customers and the amount of intracompany sales between geographical areas. Segment disclosure requires that companies disclose the amount of sales to unaffiliated customers by geographical region. They also require disclosure of intracompany sales between geographical areas. These cannot be aggregated but must be reported separately

Which of the following factors determines whether an identified segment of an enterprise should be reported in the enterprise's financial statements under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information? I. The segment's assets constitute more than 10% of the combined assets of all operating segments. II. The segment's liabilities constitute more than 10% of the combined liabilities of all operating segments. A. I only B. II only C. Both I and II D. Neither I nor II

A. I only FAS 131 uses assets, revenue, and profits as the factors identifying reportable segments. A segment meeting any one of the three quantitative factors constitutes a reportable segment. Liabilities are not one of the factors.

Correy Corp. and its divisions are engaged solely in manufacturing operations. The following data (consistent with prior years' data) pertain to the industries in which operations were conducted for the year ending December 31, 2005: Industry Total revenue Operating profit Identifiable assets at 12/31/89 A $10,000,000 $1,750,000 $20,000,000 B 8,000,000 1,400,000 17,500,000 C 6,000,000 1,200,000 12,500,000 D 3,000,000 550,000 7,500,000 E 4,250,000 675,000 7,000,000 F 1,500,000 225,000 3,000,000 $32,750,000 $5,800,000 $67,500,000 In its segment information for 2005, how many reportable segments does Correy have? A. Three B. Four C. Five D. Six

C. Five Using the three quantitative thresholds (tests) from FAS 131 (Disclosures about Segments), the five following segments are reportable operating segments: A, B, C and E meet the test: Reported revenue, including external and internal, is 10% or more of the combined revenue of all reported operating segments. 10% of $32,750,000 is $3,275,000. The revenues of A, B, C and E all exceed this amount. D meets the test: Its assets (here $7,500,000 for D) are 10% or more of the combined assets of all operating segments (here $6,750,000 = .10 x $67,500,000). F meets none of these tests. Note: Some of the above segments meet more than one test. Only one needs to be met for a segment to be reportable.

Which of the following qualifies as a reportable operating segment? A. Corporate headquarters, which oversees $1 billion in sales for the entire company B. North American segment, whose assets are 12% of the company's assets of all segments, and management reports to the chief operating officer C. South American segment, whose results of operations are reported directly to the chief operating officer, and has 5% of the company's assets, 9% of revenues, and 8% of the profits D. Eastern Europe segment, which reports its results directly to the manager of the European division, and has 20% of the company's assets, 12% of revenues, and 11% of profits

B. North American segment, whose assets are 12% of the company's assets of all segments, and management reports to the chief operating officer Only the North American segment meets at least one of the three quantitative criteria at the 10% level (revenue, income, assets) AND reports to the chief operating decision maker of the firm as a whole. For all three criteria, the segment must account for 10% or more of the combined amount for all operating segments. Reporting to the company-wide chief operating decision maker is also a requirement of an operating segment.

The following information pertains to revenue earned by Timm Co.'s industry segments for the year ending December 31, 2005: Segment Sales to unaffiliated customers Intersegment sales Total revenue Alo $5,000 $3,000 $8,000 Bix 8,000 4,000 12,000 Cee 4,000 - 4,000 Dil 43,000 16,000 59,000 Combined 60,000 23,000 83,000 Elimination - (23,000) (23,000) Consolidated $60,000 - $60,000 ======== ======= ======= In conformity with the revenue test, Timm's reportable segments were A. Only Dil. B. Only Bix and Dil. C. Only Alo, Bix, and Dil. D. Alo, Bix, Cee, and Dil.

B. Only Bix and Dil. To meet the revenue test, an operating segment must have total sales (including intersegment sales) of 10% or more of the combined segment sales (including intersegment sales). $83,000 is the test number. Only Bix with $12,000 of total sales and Dil with $59,000 have sales in excess of $8,300 (.10 x $83,000).

Grum Corp., a publicly owned corporation, is subject to the requirements for segment reporting. In its income statement for the year ending December 31, 2004, Grum reported revenues of $50,000,000, operating expenses of $47,000,000, and net income of $3,000,000. Operating expenses include payroll costs of $15,000,000. Grum's combined identifiable assets of all industry segments at December 31, 2004 were $40,000,000. In its 2004 financial statements, Grum should disclose major customer data if sales to any single customer amount to at least A. $300,000. B. $1,500,000. C. $4,000,000. D. $5,000,000.

D. $5,000,000. Under FAS 131 (1997), if revenues from transactions with a single customer amount to 10% or more of a firm's total revenue, that fact must be disclosed, along with the total revenues from each such customer. For this firm with revenues of $50,000,000, 10% of total revenues is $5,000,000.

Cott Co.'s four business segments have revenues and identifiable assets expressed as percentages of Cott's total revenues and total assets as follows: Revenues Assets Ebon 64% 66% Fair 14% 18% Gel 14% 4% Hak 8% 12% 100% 100% ====== ====== Which of these business segments are deemed to be reportable segments? A. Ebon only B. Ebon and Fair only C. Ebon, Fair, and Gel only D. Ebon, Fair, Gel, and Hak

D. Ebon, Fair, Gel, and Hak FAS 131, issued in 1997, uses the term "operating segments" rather than business segments. All four meet at least one of the three criteria for a reportable segment. A segment needs to meet only one of these criteria to be reportable (that is, required to report income and other data separately). The three criteria are (summarized): segment revenue is 10% or more of total revenue for all reported operating segments, segment profit or loss is 10% or more of total profit for those segments reporting a profit, or 10% of total loss for those segments reporting a loss, whichever is greater in absolute amount, and segment assets are 10% or more of total assets of all operating segments. Thus, each segment meets at least one of the three criteria.

Terra Co.'s total revenues from its three business segments were as follows: Segment Sales to unaffiliated customers Intersegment sales Total revenues Lion $70,000 $30,000 $100,000 Monk 22,000 4,000 26,000 Nevi 8,000 16,000 24,000 ------ ----- ------ Combined $100,000 $50,000 $150,000 Elimination - (50,000) (50,000) ------ ----- ------ Consolidated $100,000 $ - $100,000 ======== ====== ======= Which business segment(s) is (are) deemed to be reportable segment(s)? A. None B. Lion only C. Lion and Monk only D. Lion, Monk, and Nevi

D. Lion, Monk, and Nevi Under FAS 131, a segment is reportable if its sales (including intersegment sales) are at least 10% of total combined revenues (including intersegment sales) for all segments. Total combined sales are $150,000. Thus, all three segments are reportable because the combined sales of each exceed $15,000.