Chapter 15

QUESTION 1 GAAP requires that segment information be reported by geographics, without regard to size of the segment. by industry or product-line, without regard to geographics. by geographics, without regard to industry or product-line. however management organizes the enterprise into units for internal decision-making and performance-evaluation purposes.

however management organizes the enterprise into units for internal decision-making and performance-evaluation purposes.

What is the threshold for reporting a major customer? 10 percent of profits 10 percent of revenues 5 percent of profits 5 percent of revenues

10 percent of revenues

Which of the following is NOT a quantitative threshold for determining a reportable segment? Segment assets are 10% or more of the combined assets of all operating segments. Segment reported revenue, including intersegment revenues, is 10% or more of the combined revenue (both internal and external) of all operating segments. The absolute value of a segment's 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. Segment residual profit after the cost of equity is 10% or more of the combined residual profit of all operating segments.

Segment residual profit after the cost of equity is 10% or more of the combined residual profit of all operating segments.

Interim financial reports provide more timely, extensive information than annual financial reports. True False

False

Cole Company has the following 2014 financial data: Cole Company should add segments if the sum of its segments' external revenue does not exceed $825,000. the sum of its segments' external revenue does not exceed $600,000. the sum of its segments' revenue including intersegment revenue does not exceed $825,000. the sum of its segments' revenue including intersegment revenue does not exceed $600,000.

the sum of its segments' external revenue does not exceed $600,000.

For an operating segment to be considered a reporting segment under the revenue threshold, its reported revenue must be 10% or more of the combined revenues, including intersegment revenues, of all operating segments. the combined enterprise revenues, eliminating all relevant intracompany transfers and balances. the combined revenues, excluding intersegment revenues, of all operating segments. the consolidated revenue of all operating segments.

the combined revenues, including intersegment revenues, of all operating segments.

Jacana Company uses the LIFO inventory method. During the second quarter, Jacana experienced a 100-unit liquidation in its LIFO inventory at a LIFO cost of $430 per unit. Jacana considered the liquidation temporary and expects to replace the units in the third quarter at an estimated replacement cost of $460 a unit. The cost of goods sold computation in the interim report for the second quarter will include the 100 liquidated units at the $430 LIFO unit cost. be understated by $3,000. include the 100 liquidated units at the $460 estimated replacement unit cost. be overstated by $3,000.

include the 100 liquidated units at the $460 estimated replacement unit cost.

If the LIFO method is used for inventory to reduce taxable income, the IRS requires the LIFO method to be used for financial reporting purposes. True False

True

Management-approach-based segments are called operating segments. True False

True

Which one of the following operating segment information items is NOT directly named by GAAP to be reconciled to consolidated totals? Profit or loss Liabilities Revenues Assets

Liabilities

What is the purpose of interim reporting? Provide shareholders with more accurate information Provide shareholders with more extensive detail about specific accounts and transactions Provide shareholders with more current audited information Provide shareholders with more timely information

Provide shareholders with more timely information

GAAP requires disclosures for each reportable operating segment for each of the following, except for Revenues. Depreciation expense. Extraordinary items. R&D expenditures.

R&D expenditures.

Similar operating segments may be combined if the segments have similar economic characteristics. Which one of the following is a similar economic characteristic under GAAP? The segments' management teams The expected rates of return and risk for the segments' productive assets The distribution method for products or services The tax reporting law sections

The distribution method for products or services

Which of the following conditions would not indicate that two business segments should be classified as a single operating segment? They have a similar distribution method for products. They have similar production processes. They have similar products or services. They have similar amounts of intersegment revenues or expenses.

They have similar amounts of intersegment revenues or expenses.

Sandpiper Corporation paid $120,000 for annual property taxes on January 15, 2014, and $20,000 for building repair costs on March 10, 2014. Total repair expenses for the year were estimated to be $200,000, and are normally accrued during the year until incurred. What is the total amount of property tax and repair expense to be reported in Sandpiper's first quarter 2014 interim income statement? $ 80,000 $100,000 $ 50,000 $140,000

$ 80,000

The estimated taxable income for Shebill Corporation on January 1, 2014, was $80,000, $100,000, $100,000 and $120,000, respectively, for each of the four quarters of 2014. Shebill's estimated annual effective tax rate was 30%. During the second quarter of 2014, the estimated annual effective tax rate was increased to 34%. Given only this information, Shebill's second quarter income tax expense was $34,000. $30,000. $61,200. $37,200.

$37,200.

Which one of the following operating segment disclosures is NOT required by GAAP? Total Assets Equity Extraordinary items Intersegment sales

Equity

For reporting purposes, a segment is considered material if its assets are 15 percent or more of the combined assets of all operating segments. True False

False

Pensions and corporate headquarters are all part of an operating segment. True False

False

The Securities and Exchange Commission require that quarterly reports be prepared for the company's stockholders and for filing with the IRS. True False

False

The gross profit method for estimating inventory and cost of goods sold can be used for interim financial reports if the periodic inventory method is not used and it is too costly to perform an inventory count. True False

False

The following table is provided in the disclosures for interim reporting by Bigg Company, regarding the location of their assets. Based on the table, which of the following statements is true? Only the U.S. and Mexico divisions would be reportable geographic divisions. All geographic divisions would be reportable. The U.S., Mexico and Canada divisions would be reportable geographic divisions. All geographic divisions would be reportable, except for "other."

The U.S., Mexico and Canada divisions would be reportable geographic divisions.

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 operating profits test, which of the following statements is correct? The test value for all segments is 10% of consolidated net profit. 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. 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. 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.

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.

A reconciliation between the segment data and the consolidated information must be provided for the total of the reportable segments' revenues and the reported consolidated revenues. True False

True

Enterprises must disclose the existence of major customers; the single customer that accounts for 10 percent or more of the enterprise's revenue. True False

True

Enterprises must report segment information using the management approach to segmentation. True False

True

Dott Corporation experienced a $100,000 extraordinary loss in the second quarter of 2014 in their East Coast operating segment. The loss should be recognized in equal amounts allocated to the remaining three quarters of 2014 of the East Coast segment. only at the consolidated report level at the end of the year. in equal amounts allocated to the remaining three quarters of 2014 at the corporate level. entirely in the second quarter of 2014 in the East Coast operating segment.

entirely in the second quarter of 2014 in the East Coast operating segment.

How does GAAP view interim accounting periods? As discrete units of the entire year using the same principles that are applied to the annual period As integral units of the entire year for which each interim period is an essential part of an annual period As discrete units for which net income may be separately determined As integral units of the entire year with each interim period as an independent accounting period

As integral units of the entire year for which each interim period is an essential part of an annual period

In general, GAAP encourages the identification of reportable segments based on the following: Reported segments must ideally account for at least 75% of all sales, unless there are many smaller divisions and separate reporting would create less clarity in reporting. Reported segments must account for at least 75% of all external and inter-segment sales. If there are more than 10 reportable segments, the company should consider additional aggregation of their segments. Reported segments must account for 100% of the external sales, but only 75% of external and inter-segment sales.

If there are more than 10 reportable segments, the company should consider additional aggregation of their segments.