Advanced Accy Chapter 8

How does FASB Interim Reporting require companies to treat interim periods?

As integral parts of an annual period rather than as discrete accy periods in their own right

How should income tax related to ordinary income be computed? Extraordinary income?

At an estimated annual effective tax rate; at the margin

How should a co. handle LIFO liquidation in an interim period when the liquidated inv is expected to be replaced by yr end?

COGS should be adj. in interim period to reflect the cost at which the liquidated inv is expected to be replaced which avoids the effect of the LIFO liquidation on interim period income

What 4 items are required for disclosure of B/S and CF?

Cash; NWC; LT liab; stockholder's equity

Under what conditions must an enterprise provide info about geographic areas?

For all foreign countries in which the co generates rev or holds assets, and each foreign country in which the co generates a material amount of rev or assets

When must a co. report geographic area info?

If the co. has only one operating segment and doesn't provide segment info

Name 3 types of enterprise-wide disclosures

Info about products and services; info about geographic areas; info about major customers

Name two total segment assets

Invest in equity method affiliates and expenditures for additions to long lived assets

How does the consolidation process tend to disguise info needed to analyze the financial operation of a diversified org?

It presents the account balances of a bus. combination w/out regard for the individual component units that compromise the org

The mgmt approach requires a firm to define segments on the basis of its internal org structure. What are the adv. in defining segments on this basis?

It removes much of the flexibility and subjectivity associated with defining industry segments under prior standards

What is an asset test?

It segments assets that are 10% or more of the combined assets of all operating segments

What is the profit or loss test?

It segments profits or losses and is 10% or more of the greater of the combined reported profit of all profitable segments or the combined reported loss of all segments incurring a loss

What is the revenue test?

It segments rev, both external and intersegment and are 10% or more of the combined rev

To satisfy geographic area disclosure requirements, what are minimum and max numbers of countries for which info should be reported separately?

Minimum is one (just the domestic country); there's no max

What aggregation criteria must mgmt consider to determine whether to combine operating segments?

Nature of the products provided by each operating segments; nature of production process; type/class of customer; distribution methods; nature of the regulatory environment

How are segments based in a management approach?

On the way that mgmt disaggregates the enterprise for making operating decisions

What procedures must co.s follow to account for a change in accy principle made in other than the first interim period of the yr?

Reported based on retrospective application of the new accy principle

What info must an enterprise report by geographic area?

Rev from external customers and long-lived assets

What type of segment info must co.s provide in interim F/S?

Rev from external customers; intersegment rev; segment profit/loss; total assets if there has been material change in assets

Name the 7 types of components of profit or loss segments

Rev from external customers; rev from transactions with other operating segments; int rev and int exp; depr and amort; other significant noncash items; unusual items or extraordinary items; income tax exp or benefit

What are the three quantitative threshold tests that are applied to identify segments of sufficient size to warrant separate disclosure?

Rev test, Profit/loss test, asset test

What minimum info must an enterprise provide in an interim report?

Sales/income tax/NI; EPS; seasonal rev and exp; significant changes in est.; disposal of bus. segment and unusual items; contingent items; changes in accy principles; significant changes in items of financial position

What's the minimum number of operating segments that must be separately reported?

Segments with at least 75% of the rev generated from outside parties

What are the two general restrictions on the presentation of operating segments?

Separately reported operating segments must generate at least 75% of total sales made by outside parties; ten is the max number of operating segments that should be separately disclosed

What's disaggregated financial info?

The data of a reporting unit that has been broken down into components so that the separate parts can be identified and studied

Long-lived assets of international activities need to be reported for which 2 things?

The domestic country and all foreign countries in total in which the enterprise derives rev or holds assets

According to FASB, what's the 3 major objectives of segment reporting?

To better understand the enterprise's performance; better assess its prospects for future net CF; make more informed judgements about the enterprise as a whole

Why are publicly traded co.s in US required to prepare interim reports on a quarterly basis?

To provide investors and creditors w/ relevant info on a more timely basis than is provided by an annual report

T or F? Interim statements should not reflect the effect of a LIFO liquidation if the units of beg inv sold are expected to be replaced by year end

True

Under what conditions should a co disclose the amount of sales from a major customer?

When sales to a single customer are 10% or more of consolidated sales

The total reportable segments' assets must be reconciled to consolidated total ____

assets

The total reportable segments' profit or loss must be reconciled to consolidated _______ before tax

income

A segment is _______ if it satisfies only one of these test: rev test, profit/loss test, asset test

reportable

For FASB interim periods, an accounting change is applied _________, prior period F/S are restated as if the new accy principle had always been used

retrospectively

The total reportable segments' rev must be reconciled to consolidated ____

revenues

How should costs incurred in one interim period but associated with activities or benefits of multiple periods should be allocated?

Across interim periods on a reasonable basis through accruals and deferrals

How would an annual bonus paid at year-end be treated under IAS and how does this treatment differ from what's required under GAAP?

An annual bonus paid in the 4th quarter of the year would be recognized fully in that quarter; the annual bonus would be accrued as exp in each of the first 3 quarters

How should materiality of an extraordinary item should be assessed?

By comparing its amount against the expected income for the full year

How does a co. determine the amount of income tax exp to report in an interim report?

By estimating the effective tax rate for the entire year which is then applied to the cumulative pre-tax income earned to date to determine the income tax to be recognized to date

What approach are co.s required to follow in preparing interim F/S?

Each interim period is considered to be an integral part of an annual accy period, rather than a discrete accy period in its own right

What are the three criteria that must be met for operating segments that are components of an enterprise?

Engage in bus. activities and earn rev and incur exp; operating results are regularly reviewed by the CO decision maker to assess perf and make resource allocation decisions; discrete financial info is available from internal reporting system

T or F? Quarterly statements need to be audited

False

T or F? Co.s don't have to explain the measurement of segment profit or loss and segment assets

False; they do have to explain it