Chapter 8

An objective of segment reporting is to provide information about the different

economic environments in which an enterprise operates.

A company makes an accounting change in the third quarter of the current year. That change must be applied (1) to the first and second quarters of the year.

1. retrospectively

Even if an enterprise has only one operating segment it still must report the amount of revenue generated by each of its major products and services.

True

Select all that apply Authoritative literature requires an entity to disclose revenues from external transactions from each of its products and services

even if it has only one operating segment. unless it is impracticable to do so. when its operating segments are not based on products and services.

A company has six operating segments with combined total revenues of $500 million. An operating segment is separately reportable if its revenues exceed

$50 million.

An operating segment is significant if its total revenues are (1) percent or more of the combined total revenues of all reported operating segments.

1. 10

In interim reports companies are not required to disclose

cost of goods sold.

When an interim period is treated as a discrete period in its own right, bonuses paid to key employees in December are recognized

in total in the fourth quarter of the year.

Select all that apply Under U.S. GAAP, in preparing quarterly reports, a company must disclose for each operating segment the amount of

intersegment revenues. segment profit or loss. revenues from external customers.

In interim reports, operating segment information

must be provided for revenues (external and intersegment), and segment profit or loss.

An entity's operating segments measure pension expense on a cash basis (i.e., the amount of cash contributed to the pension fund), whereas, in preparing consolidated financial statements, the entity must measure pension expense on an accrual basis in accordance with GAAP. In this situation, the amount of pension expense used in reporting segment profit or loss must be

measured on a cash basis.

A company has six operating segments that have combined total assets of $100 million. Each operating segment is separately reportable whose total assets are at least equal to

$10 million.

ABC Company reports sales revenue of $1,000,000 in its consolidated income statement. The aggregate amount of sales revenue that must be disclosed by individual operating segments is

$750,000

Select all that apply The denominator in applying the revenue test to determine whether an operating segment is significant should include

revenues from sales to outside customers. revenues from sales to other segments.

Select all that apply An entity must explain that way it measures

segment assets. segment profit or loss.

Select all that apply Companies must disclose differences in measuring

segment profit or loss and consolidated income before tax. segment assets and consolidated assets.

A segment is separately reportable if its total revenues (both internal and external) are equal to at least 10% of an entity's combined revenue of all reported operating segments (both internal and external).

True

An operating segment is reportable based upon the revenue test if its

combined external and internal (intersegment) revenues are 10% or more of combined external and internal revenue of all reported operating segments.

A cost that is incurred in the second quarter of the year but which benefits all four quarters of the year should be recognized as an expense

in all four quarters of the year.

A company has eight operating segments, five of which pass one or more quantitative thresholds to be considered separately reportable. The five separately reportable operating segments have 70 percent of total company consolidated sales to outside customers. The company

must separately report additional segments until the total combined sales of reported segments is at least 75 percent of consolidated sales.

A company has three operating segments with a combined profit of $900 and one operating segment with a loss of $200. The quantitative threshold for determining a significant operating segment under the profit or loss test is

$90.

A company should estimate its annual (1) tax rate in calculating income tax at the end of each interim period.

1. effective

A customer from whom an enterprise generates 10% or more of total revenues is referred to as a (1) customer.

1. major

A company must report revenues from transactions with external customers for each country in which it has a (1) amount of external revenues.

1. material

A component of an enterprise that recognizes revenues and expenses, is regularly reviewed by the chief operating decision maker, and has discrete financial information is a(n) (1) segment.

1. operating

Select all that apply An enterprise must provide disclosures for each foreign country in which it has a material amount of

long-lived assets. revenues from external customers.

When an interim period is treated as an integral portion of an entire year, bonuses paid to key employees in December are recognized as expense

on a proportionate basis in each of the four quarters of the year.

A company has three segments with the following amounts of assets: Segment 1, tangible assets of $1,000 and intangible assets of $200; Segment 2, tangible assets of $4,000 and intangible assets of $500; Segment 3, tangible assets of $500 and investments of $100. The quantitative threshold for a significant operating segment under the asset test is

$630.

ABC Company owns four restaurants that serve breakfast sandwiches in four different cities. The economic environment in the four cities is similar, but each restaurant meets the definition of an operating segment. ABC Company

may combine the four restaurants into one reportable segment.

An operating segment is defined as a component of an enterprise

that generates revenues and incurs expenses.

Select all that apply If an entity has a major customer it must disclose

the amount (or percentage) of revenue generated from that customer. the operating segment that generates revenues from that customer.

A company's operating segments are separately reportable when total segment assets are $5 million. The company's total assets must be

no higher than $50 million.

With respect to reporting long-lived assets by geographic area,

IFRS specifically indicates that intangible assets are included in long-lived assets but U.S. GAAP does not.

A company using LIFO to account for inventory sells more units of product in the first quarter of the year than it produces, which results in a LIFO liquidation. However, by the end of the year, the company expects there to be no LIFO liquidation. In preparing its first quarter financial statements the company should

make an adjustment to cost of goods sold to offset the effect of the LIFO liquidation.

True or false: Gross profit in the first quarter of the year should not reflect the effect of a LIFO liquidation if the company does not expect the LIFO liquidation to continue until the end of the year.

True

A company pays its annual income taxes in December of each year. Under IFRS, tax expense should be

accrued at the end of each interim period

When an entity has a matrix organization, U.S. GAAP requires operating segments to be based on products and services rather than geographic areas. In this situation, IFRS

allows operating segments to be based on either products and services or geographic areas.

In the third quarter of the current year, a company decides to change its accounting method related to inventory. The company is able to calculate the impact that the new method would have had on the first and second quarter financial statements if the new method had been adopted at the beginning of the year. The company should use the new accounting method

beginning in the third quarter of the current year and restate amounts reported in the first and second quarters for the accounting method change.

Segment reporting provides information about the different

business activities in which an enterprise engages.

Select all that apply An enterprise must report the amount of sales revenue generated

in its home country. in all foreign countries in total.

Select all that apply In interim reports companies must disclose

seasonal revenues and expenses. contingent items. basic and diluted earnings per share. sales or gross revenues. provision for income taxes.

Some companies are organized and provide segment disclosures on the basis of geographic areas only. An example of such a company is

McDonald's. Apple.

To recognize income tax expense at the end of each interim period a company must estimate what it believes its (1) effective tax rate will be.

1. annual

A company has three operating segments with combined profits of $150 million and one operating segment with a net loss of $200 million. The quantitative threshold for a significant operating segment is

$20 million.

A difference between IFRS and U.S. GAAP with respect to reporting by operating segment is

IFRS requires disclosure of segment liabilities but U.S. GAAP does not.

For each separately reportable operating segment, an enterprise must report

depreciation expense.

Companies must disclose the seasonal nature of their business operations when they

experience a spike in sales volume in one specific quarter each year.

Select all that apply The criteria that must be met for a component of an enterprise to be identified as an operating segment are that it

generates revenues and incurs expenses. is regularly reviewed by the chief operating decision maker. has discrete financial information available.

Operating segments that are individually significant and otherwise separately reportable may be combined if they

have essentially the same business activities in essentially the same business environments.

For each individual foreign country in which an entity has a material amount, it must report

revenues from transactions with external customers.

Select all that apply For each separately reportable operating segment, an enterprise must report

total assets. revenues from intersegment sales. profit or loss. revenues from sales to external customers.

An enterprise must disclose unusual items included in segment profit or loss only if

unusual items are included in the profit or loss measure regularly reviewed by the chief operating decision maker.

ABC Company's operating segments use a cash basis of accounting to determine the amount of pension expense included in the measure of segment operating income reported to corporate headquarters. Adjustments are made at corporate headquarters to convert segment pension expense from a cash basis to an accrual basis for inclusion in the company's U.S. GAAP consolidated financial statements. In accordance with authoritative guidance, ABC Company must report segment profit or loss for each operating segment

using pension expense determined on a cash basis.

A toy manufacturing company makes more than one-half of its annual sales in the fourth quarter of the year when customers place orders for the holiday season. In accordance with FASB ASC 270, the company must disclose (1) the nature of its business operations.

1. seasonal

A company with a December 31 year-end plans to pays its president a bonus at the end of December. The bonus will be based on the current year's year-to-date income at the time the bonus is paid. The company should

estimate the amount of bonus to be paid in December and recognize 1/4 of this amount as expense in the first quarter of the year.

Unlike U.S. GAAP, for interim reporting purposes, IFRS requires each interim period to be treated as

a discrete accounting period in its own right.