Chapter 8- Segment and Interim Reporting

Total segment assets and the following related items

Investment in equity method affiliates, Expenditure for additions to long-lived assets

Which of the following is a criterion for determining whether an operating segment is separately reportable?

Segment assets are 10 percent or more of combined segment assets.

operating segment is a component of an enterprise

1. that engages in business activities from which it earns revenues and incurs expenses 2. Whose operating results are regularly reviewed by the chief operating decision maker to assess performance and make resource allocation decisions 3. for which discrete financial information is available

Livro Company has three operating segments with the following information: Books Calendars BagsSales to outsiders$8,800 $4,400 $6,800 Intersegment transfers 680 1,160 1,800 In addition, corporate headquarters generates revenues of $1,000.

2364

Livro Company has three operating segments with the following information: Books Calendars BagsSales to outsiders$12,000 $9,000 $8,000 Intersegment transfers 1,000 500 1,500 In addition, corporate headquarters generates revenues of $2,000. What is the minimum amount of revenue that each of these segments must generate to be considered separately reportable?

3200

Howard Corporation has six different operating segments reporting the following operating profit and loss figures: A$80,000profitB 140,000lossC 100,000profitD 440,000lossE 50,000profitF 170,000profit With respect to the profit or loss test, which of the following statements is not true? Multiple Choice

C is not a reportable segment based on this one test.

management must consider these aggregation criteria to determine whether to combine operating segments

nature of the products or services, nature of production process, type or class of customer, distribution methods, nature of the regulatory environment

Discrete

the accounting period stands on its own

current guidelines require

the retrospective application of a new accounting principle to prior periods of financial statements

A company should recognize projected losses on long term contracts

to their full extent in the interim period in which it becomes apparent that a loss will arise

integral

treat the accounting period as a portion of a longer period

profit or loss test

its profit or loss is 10 percent or more of the combined profit(or combined loss if larger) of all segments reporting a profit

What information about revenues by geographic area should a company present?

Disclose separately the amount of sales to unaffiliated customers but not the amount of intra-entity sales between geographic areas.

Which of the following statements concerning FASB ASC 280 is true?

Does not require segment information to be reported in accordance with generally accepted accounting principles

Which of the following does U.S. GAAP not consider to be an objective of segment reporting?

It helps users make comparisons between a segment of one enterprise and a similar segment of another enterprise.

For companies with international activities, two items must be reported:

Revenues from external customers, Long lived assets for the domestic country, all foreign countries in total in which the enterprise derives revenues and holds assets.

Authoritative accounting literature requires companies to provide minimum information in their interim reports for:

Sales or gross revenues, earnings per share, seasonal revenues and expenses, Significant changes in estimates or provisions for income taxes, Disposal of a component of the business and unusual or infrequently occurring items, contingent items, changes in accounting principles or estimates, significant changes in financial position.

How should material seasonal variations in revenue be reflected in interim financial statements?

The seasonal nature should be disclosed, and the interim report should be supplemented with a report on the 12-month period ended at the interim date for both the current and preceding years.

In determining whether a particular operating segment is of significant size to warrant disclosure, which of the following is true?

Three tests are applied, and only one must be met.

The total of reportable segments revenues

must be reconciled to consolidated revenues

the total of the reportable segments assets

must be reconciled to consolidated total assets

An enterprise

must reconcile total segments' profit or loss to the company's total income before taxes.

Revenues should be recognized in interim periods the same way

revenues are recognized on an annual basis

revenues from long term contracts

should be recognized using the same methodology as used on an annual basis

Discontinued operations

should be reported in net income on a net of tax basis in the interim period in which a business component is discontinued or classified as held for sale

Other guidelines for combined sales revenue

the combined sales revenues of the disclosed segments must be at least 75 percent of total company sales, excluding intra-entity sales

Revenues from external customers and long lived assets must be disclosed for

the domestic country, all foreign countries where the enterprise derives revenue or holds assets, each foreign country in which a material amount of revenue is derived or assets are held

companies also must explain the measurement of segment profit or loss and segment assets including a description of any differences in measuring

1. Segment profit or loss and consolidated income before tax. 2. Segment assets and consolidated assets 3. Segment profit or loss and segment assets

Three test

1. Revenue test 2. profit or loss test 3. asset test

Segment reporting provide information to help users of financial statements to

1. Better understand the enterprises performance 2. better assess the entitys prospects for future net cash flows 3. make more informed judgements about the enterprise as a whole

For a U.S.-based company, which of the following would be an acceptable presentation of countries for providing information by geographic area?

United States, Mexico, Japan, Spain, All Other Countries

•G A A P requires the following interim disclosure for each reportable operating segment:

a) Revenues from external customers. b) Intersegment revenues. c) Segment profit or loss. d) Total assets (if there has been a material change from the last annual report).

Companies are encouraged

but not required, to publish balance sheet and cash flow information in interim reports.

General information about each operating segment

factors used to identify reportable operating segments types of products and services from which each operating segment reported derives its revenues

Income taxes

for each interim period should be computed based on an estimated annual effective tax rate

there are no requirements

for interim disclosures about major customers or geographic areas

interim reporting provides

guidance on how to prepare interim statements

Segment profit or loss must be diclosed

if it is regularly provided to or included in the measure of segment profit or loss reviewed by the chief operating decision maker: Revenues from external customers, transaction revenues from other operating segments, interest revenue and expenses( Reported separately), Depreciation, depletion, and amortization expense, Significant noncash and unusual items, income tax expense or benefit, equity in the net income of investees

revenue test

if revenues are 10 percent or more of the combined revenue of all reported operating segments

If the company has only one operating segment and does not provide segment information

it must report geographic area information

asset test

its assets are 10 percent or more of the combined assets of all operating segments.

ASC 250 Requires

1.The cumulative effect of the change on prior periods be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented. 2.Any offsetting adjustment is made to the opening balance of retained earnings (or other appropriate accounts). 3.Financial statements for each prior period are adjusted to reflect the period-specific effects.

Baton Company estimates that the amounts for total depreciation expense for the year ending December 31 will be $120,000 and for year-end bonuses to employees will be $200,000. What total amount of expense relating to these two items should Baton report in its quarterly income statement for the three months ended March 31?

80000

ASC 280 requires one final but important disclosure

A reporting entity must indicate its reliance on any major external customer whenever 10 % or more of a company's consolidated revenues is derived from a single external customer

the interim inventory modifications relate to

lifo liquidation, application of the lower of cost of net realizable value rule and standard costing

the total of reportable segments profit or loss

must be reconciled to consolidated income before tax