Segment and Interim Reporting

File: Chapter 08 – Segment and Interim Reporting

 

Multiple Choice:                                                        

 

[QUESTION]

1. Generally accepted accounting principles require a U.S. corporation to disclose the following disaggregated information for each operating segment, except:
2. A) Revenues from external customers.
3. B) Unusual items.
4. C) Cost of goods sold.
5. D) Depreciation expense.
6. E) Intersegment revenues.

Answer: C

Learning Objective: 08-03

Topic: Reportable segments―Disclosure requirements

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

2. Which tests must a company use to determine which operating segments require separate disclosure?
3. A) Revenue test and asset test.
4. B) Revenue test, profit or loss test, and asset test.
5. C) Revenue test and profit or loss test.
6. D) Profit or loss test and asset test.
7. E) Revenue test, asset test, and liability test.

Answer: B

Learning Objective: 08-02

Topic: Reportable segment―Any of the 10-percent tests

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

3. Coulanger Corp. identified four operating segments: A, B, C, and D. Segment A met the revenue test for identifying reportable segments while Segment C met the revenue test, profit or loss test, and asset test.  Segment B and Segment D did not meet any of these tests.  Which of these segments must be disclosed separately?

 

	Segment A	Segment B	Segment C	Segment D
A)	Yes	Yes	No	No
B)	Yes	Yes	Yes	Yes
C)	Yes	No	Yes	No
D)	No	Yes	No	Yes
E)	No	No	Yes	Yes

Answer: C

Learning Objective: 08-02

Topic: Reportable segment―Any of the 10-percent tests

Difficulty: 1 Easy

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

4. Kaycee Corporation’s revenues for the year ended December 31, 2017, were as follows:

Consolidated Revenue per the Income Statement: $1,200,000

Division 1 Intersegment Sales: $180,000

Division 2 Intersegment Sales: $60,000

For purposes of the Revenue Test, what amount will be used as the benchmark for determining whether a segment is reportable?

1. A) $ 24,000.
2. B) $120,000.
3. C) $138,000.
4. D) $144,000.
5. E) $

Answer: D

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: Consolidated Revenue $1,200,000 + Upstream I/E Sales $180,000 + Downstream I/E Sales $60,000 = $1,440,000 × 10% = $144,000

 

REFERENCE: 08-01

Natarajan, Inc. had the following operating segments, with the indicated amounts of segment revenues and segment expenses:

[QUESTION]

REFER TO: 08-01

5. According to the revenue test, which segments would require disaggregation?
6. A) A, B, D, and E.
7. B) A and B.
8. C) B and C.
9. D) A, B, and D.
10. E) C, D, and E.

Answer: A

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: (Total External Rev + Total I/E Sales) × 10% = Threshold for Segment Reporting

 

[QUESTION]

REFER TO: 08-01

6. According to the profit or loss test, which segments would require disaggregation?
7. A) A, B, D, and E.
8. B) A, B, C, and E.
9. C) A, B, and D.
10. D) A and D.
11. E) A only.

Answer: B

Learning Objective: 08-02

Topic: Reportable segment―Profit or loss test

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

REFER TO: 08-01

7. For purposes of the profit or loss test, segment C’s operating profit or (loss) is
8. A) $1,300,000.
9. B) $ 700,000.
10. C) $2,000,000.
11. D) $ 200,000.
12. E) $ (200,000.)

Answer: E

Learning Objective: 08-02

Topic: Reportable segment―Profit or loss test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: External Rev $700,000 + I/E Sales $1,300,000 = Total Segment Sales $2,000,000 – Segment Expenses $2,200,000 = $200,000 Segment Loss

 

[QUESTION]

REFER TO: 08-01

8. When totaling the revenues to use as the basis for the 75% rule, what is the 75% hurdle that must be exceeded by the revenues of the reportable segments?
9. A) $ 1,670,000.
10. B) $12,525,000.
11. C) $15,487,500.
12. D) $16,700,000.
13. E) $20,650,000.

Answer: B

Learning Objective: 08-02

Topic: Reportable segments―Other guidelines

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: External Rev $16,700,000 × .75 = $12,525,000

 

[QUESTION]

9. When defining a reportable segment, which of the following conditions would be sufficient to allow a company to combine two operating segments for purposes of testing?
10. A) The products sold by each segment are produced in the same plant.
11. B) Both segments have several customers in common.
12. C) The segments may sell different products, but they have a similar economic environment and similar business activities.
13. D) Both segments are required to adhere to U.S. Department of Labor regulations regarding immigration laws.
14. E) Both segments are owned by the same parent company.

Answer: C

Learning Objective: 08-02

Topic: Reportable segment―Any of the 10-percent tests

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

REFERENCE: 08-02

The Fratilo Co. had three operating segments with the following information:

 

	Pens	Pencils	Erasers
Sales to outsiders	$  11,200	$  5,600	$  8,400
Intersegment revenues	840	1,400	1,960

In addition, revenues generated at corporate headquarters are $1,400.

 

[QUESTION]

REFER TO: 08-02

10. Combined segment revenues are calculated to be
11. A) $29,400.
12. B) $25,200.
13. C) $26,600.
14. D) $28,000.
15. E) $27,300.

Answer: A

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: (Total External Rev $11,200 + $5,600 + $8,400) + (Total I/E Sales $840 + $1,400 + $1,960) = $29,400 Combined Segment Revenues

 

[QUESTION]

REFER TO: 08-02

11. What is the minimum amount of revenue that each of these segments must earn to be considered separately reportable?
12. A) $2,730.
13. B) $2,660.
14. C) $2,800.
15. D) $2,940.
16. E) $2,520.

Answer: D

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: Combined Segment Revenues $29,400 × 10% = $2,940 Minimum Amount of Segment Revenue

 

[QUESTION]

12. The Rivers Co. had four separate operating segments:

What amount of revenues must be generated from one customer before that party must be identified as a major customer?

680. A) $57,680.
681. B) $64,960.
682. C) $52,640.
683. D) $78,960.
684. E) $63,560.

Answer: C

Learning Objective: 08-05

Topic: Entitywide information―Major customers

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: Total External Sales Revenue $172,200 + $113,400 + $133,000 + $107,800 = $526,400 × 10% = $52,640

 

[QUESTION]

13. Which one of the following items must be disclosed for all reportable operating segments in the notes to financial statements?

(I.) Revenue from external customers.

(II.) Total Segment Assets

(III.) Revenues from foreign customers, identified by country.

 

1. A) I, II, and III
2. B) I and III only
3. C) II and III only
4. D) I and II only
5. E) There is no requirement of information to disclose for operating segments.

Answer: D

Learning Objective: 08-03

Topic: Reportable segments―Disclosure requirements

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

14. Kurves Corp. had six different operating segments reporting the following operating profit and loss figures:

Which one of the following statements is true?

1. A) Segment A is a reportable segment based on this test.
2. B) Segment B is not a reportable segment based on this test.
3. C) Segment E is a reportable segment based on this test.
4. D) Segment C is not a reportable segment based on this test.
5. E) Segment D is a reportable segment based on this test.

Answer: E

Learning Objective: 08-02

Topic: Reportable segment―Profit or loss test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: Total Profitable Segments Amount = $1,428,000 × 10% = $142,800 Segment Profit or Loss Threshold

 

REFERENCE: 08-03

Retro Corp. was engaged solely in manufacturing operations.  The following data pertain to the operating segments for 2017:

[QUESTION]

REFER TO: 08-03

15. What is the minimum amount of revenue that each of these segments must earn to be considered separately reportable?
16. A) $4,343,684.
17. B) $4,826,316.
18. C) $5,067,632.
19. D) $4,585,000.
20. E) $4,705,658.

Answer: D

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 1 Easy

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: $45,850,000 × 10% = $4,585,000

 

 

[QUESTION]

REFER TO: 08-03

16. What is the minimum amount of profit or loss that each of these segments must earn to be considered separately reportable?
17. A) $769,263.
18. B) $812,000.
19. C) $854,737.
20. D) $897,000.
21. E) $833,368.

Answer: B

Learning Objective: 08-02

Topic: Reportable segment―Profit or loss test

Difficulty:1 Easy

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: $8,120,000 × 10% = $812,000

 

[QUESTION]

REFER TO: 08-03

17. What is the minimum amount of assets that each of these segments must own to be considered separately reportable?
18. A) $ 9,450,000.
19. B) $ 8,624,272.
20. C) $10,643,000.
21. D) $12,936,408.
22. E) $10,413,000.

Answer: A

Learning Objective: 08-02

Topic: Reportable segment―Asset test

Difficulty: 1 Easy

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: $94,500,000 × 10% = $9,450,000

 

[QUESTION]

18. Which of the following statements is true regarding the identifying factors used to determine which components of a business are operating segments?
19. A) Operating segmentsare components of an enterprise that engage in business activities and from which it only recognizes revenues.
20. B) The corporate controller reviews each operating segment’s operating results to assess performance.
21. C) A component may be classified as an operating segment without revenues assuming that it generates a material level of expense.
22. D) An organizational unit can be an operating segment even if all of its revenues or expenses result from transactions with other segments.
23. E) All parts of a company must be included in an operating segment.

Answer: D

Learning Objective: 08-01

Topic: Determine operating segments

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

19. A company that generates reports by both geographic region and product line must consider additional criteria in identifying operating segments when there are multiple sets of reports. Which of the following statement(s) is correct?

(I.) An operating segment has a segment manager who is directly accountable to the chief operating decision maker for its financial performance.

(II.) If more than one set of organizational units exists, each organizational unit is considered an operating segment even if there is only one set for which segment managers are held responsible.

(III.) If segment managers exist for two or more overlapping sets of organizational units, the nature of the business activities must be considered.

 

1. A) I, II, and III.
2. B) I and III only.
3. C) I and II only.
4. D) II and III only.
5. E) None of the above.

Answer: B

Learning Objective: 08-01

Topic: Determine operating segments

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

20. Which of the following is not one of the criteria management should consider in determining whether business activities and environments of an operating segment are similar?
21. A) The geographical location of the operations.
22. B) The nature of the production process.
23. C) The distribution methods.
24. D) The nature of the regulatory environment, if applicable.
25. E) The type or class of customer.

Answer: A

Learning Objective: 08-02

Topic: Reportable segment―Any of the 10-percent tests

Difficulty:1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

21. The Hardware operating segment of Bloom Corporation has the following revenues for the year ended December 31, 2018:

For purposes of the revenue test, what amount will be used as total revenues of the Hardware operating segment?

1. A) $417,000.
2. B) $440,000.
3. C) $424,000.
4. D) $460,000.
5. E) $480,000.

Answer: E

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: $417,000 + $23,000 + $7,000 + $33,000 = $480,000

 

[QUESTION]

22. Which of the following statements is false concerning the number of operating segments that should be disclosed?
23. A) At least 75 percent of total company sales made to outsiders should be presented.
24. B) Even though an operating segment has been reportable in the past and is of continuing significance, it must meet at least one of the three reporting tests to report separately in the current year.
25. C) If the 75 percent rule is not met by the results of applying all three reporting tests, additional segments must be disclosed separately despite their failure to satisfy even one of the three quantitative thresholds.
26. D) If an operating segment qualifies for disclosure in the current year, prior period segment data presented for comparative purposes must be restated to reflect the newly reportable segment as a separate segment.
27. E) The practical limit to the number of operating segments is 10.

Answer: B

Learning Objective: 08-02

Topic: Reportable segments―Other guidelines

Difficulty: 1 Easy

Blooms: Understand

AACSB: ReflectiveThinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

23. Whitley Corporation identified four operating segments: Automotive, Electrical, Lawn Equipment, and Sporting Goods. Automotive met the revenue test and the profit or loss test.  Electrical met all three tests.  Lawn Equipment met only the asset test.  Sporting Goods did not meet any of the three tests.  Which of these segments must be disclosed separately?

 

	Automotive	Electrical	Lawn Equipment	Sporting Goods
A)	Yes	Yes	Yes	Yes
B)	No	Yes	No	No
C)	Yes	Yes	Yes	No
D)	Yes	Yes	No	No
E)	No	No	No	Yes

Answer: C

Learning Objective: 08-02

Topic: Reportable segment―Any of the 10-percent tests

Difficulty: 1 Easy

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

24. Which one of the following items is not required to be disclosed for each operating segment?
25. A) Factors used to identify operating segments.
26. B) Products and services from which each segment derives its revenues.
27. C) Revenues from external customers.
28. D) Factors used to allocate company-wide expenses.
29. E) Revenues from transactions with other operating segments.

Answer: D

Learning Objective: 08-03

Topic: Reportable segments―Disclosure requirements

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

25. The following items are required to be disclosed for each operating segment except:
26. A) Factors used to allocate company-wide pension expense.
27. B) Revenues from transactions with other operating segments.
28. C) Interest revenue and interest expense.
29. D) Depreciation, depletion, and amortization expense.
30. E) Revenues from external customers.

Answer: A

Learning Objective: 08-03

Topic: Reportable segments―Disclosure requirements

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

REFERENCE: 08-04

Dean Hardware, Inc. is comprised of five operating segments.  Information about each of these segments is as follows (in thousands):

[QUESTION]

REFER TO: 08-04

26. What is the total amount of revenues in applying the revenue test?
27. A) $794.
28. B) $808.
29. C) $892.
30. D) $906.
31. E) $934.

Answer: E

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: Sales to Outsiders $794 + I/E Transfers $98 + Interest Rev Out $14 + Interest Rev In $28 = $934 Total Revenues for Test

 

[QUESTION]

REFER TO: 08-04

27. Which operating segments are reportable under the revenue test?
28. A) Pails and Hardware.
29. B) Rakes, Pails, and Hardware.
30. C) Rakes, Hardware, and Accessories.
31. D) Rakes and Pails.
32. E) Rakes and Hardware.

Answer: B

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: $934,000 × 10% = $93,400

 

[QUESTION]

REFER TO: 08-04

28. In applying the profit or loss test, what is the minimum amount an operating segment must have in order to meet the profit or loss test for a reportable segment?
29. A) $ 2.
30. B) $ 0.
31. C) $10.4.
32. D) $13.0.
33. E) $82.0.

Answer: D

Learning Objective: 08-02

Topic: Reportable segment―Profit or loss test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: Pails $82 + Shovels $12 + Hardware $34 + Acc. $2 = Total Profit $130 × 10% = $13 Threshold for Segment Profit/Loss

 

[QUESTION]

REFER TO: 08-04

29. Which operating segments are reportable under the profit or loss test?
30. A) Rakes, Pails, and Shovels.
31. B) Rakes, Pails, Shovels, and Hardware.
32. C) Rakes, Pails, and Hardware.
33. D) Rakes, Pails, Shovels, Hardware, and Accessories.
34. E) Pails and Hardware.

Answer: C

Learning Objective: 08-02

Topic: Reportable segment―Profit or loss test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: Rakes’ Loss is Excluded from Total Profitable Segments Calculation

 

[QUESTION]

REFER TO: 08-04

30. In applying the asset test, what is the minimum amount an operating segment must have in order to meet the asset test for a reportable segment?
31. A) $12.5.
32. B) $15.2.
33. C) $17.2.
34. D) $18.4.
35. E) $19.8.

Answer: E

Learning Objective: 08-02

Topic: Reportable segment―Asset test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: Rakes $26 + Pails $122 + Shovels $16 + Hardware $20 + Acc. $14 = Total Assets $198 × 10% = $19.8 Minimum for Reporting

 

[QUESTION]

REFER TO: 08-04

31. Which operating segments are reportable under the asset test?
32. A) None.
33. B) Pails.
34. C) Rakes, Pails, and Shovels.
35. D) Rakes and Hardware.
36. E) Rakes, Pails, and Hardware.

Answer: E

Learning Objective: 08-02

Topic: Reportable segment―Asset test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: All Segments with Assets > $19.8

 

REFERENCE: 08-05

Schilling, Inc. has three operating segments with the following information:

[QUESTION]

REFER TO: 08-05

32. What is the minimum amount of revenue an operating segment must have to be considered a reportable segment?
33. A) $12,000.
34. B) $15,000.
35. C) $15,500.
36. D) $16,200.
37. E) $16,700.

Answer: D

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: External Rev ($40,000 + $50,000 + $60,000) + I/E Sales ($2,000 + $10,000) = $162,000 × 10% = $16,200

 

[QUESTION]

REFER TO: 08-05

33. According to the revenue test, which segment(s) are separately reportable?
34. A) Silver only.
35. B) Crystal and Silver.
36. C) China and Crystal.
37. D) China and Silver.
38. E) China, Crystal, and Silver.

Answer: E

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: All Segments with Revenues > $16,200

 

REFERENCE: 08-06

Peterson Corporation has three operating segments with the following information:

[QUESTION]

REFER TO: 08-06

34. What is the minimum amount of revenue an operating segment must have to be considered a reportable segment?
35. A) $3,900.
36. B) $4,000.
37. C) $4,100.
38. D) $4,200.
39. E) $4,400.

Answer: D

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: External Rev ($25,000 + $13,000 + $1,000) + I/E Sales ($1,000 + $2,000) = $42,000 × 10% = $4,200

 

[QUESTION]

REFER TO: 08-06

35. According to the revenue test, which segment(s) are separately reportable?
36. A) Mowers only.
37. B) Mowers and Edgers.
38. C) Mowers and Weedeaters.
39. D) Edgers and Weedeaters.
40. E) Mowers, Edgers, and Weedeaters.

Answer: B

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: All Segments with Revenues > $4,200

 

[QUESTION]

REFER TO: 08-06

36. What amount of revenue must be generated from one customer before such party must be identified as a major customer?
37. A) $3,900.
38. B) $4,000.
39. C) $4,100.
40. D) $4,200.
41. E) $4,400.

Answer: A

Learning Objective: 08-05

Topic: Entitywide information―Major customers

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: External Rev Only ($25,000 + $13,000 + $1,000) = $39,000 × 10% = $3,900

 

REFERENCE: 08-07

Elektronix, Inc. has three operating segments with the following information:

[QUESTION]

REFER TO: 08-07

37. What is the minimum amount of revenue an operating segment must have to be considered a reportable segment?
38. A) $650,000.
39. B) $660,000.
40. C) $670,000.
41. D) $680,000.
42. E) $690,000.

Answer: B

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: External Rev ($4,000,000 + $500,000 + $2,000,000) + I/E Transfers ($100,000) = $6,600,000 × 10% = $660,000

 

[QUESTION]

REFER TO: 08-07

38. What is the operating profit or loss for the VCRs segment?
39. A) $121,000 profit.
40. B) $121,000 loss.
41. C) $124,000 profit.
42. D) $124,000 loss.
43. E) $500,000 profit.

Answer: D

Learning Objective: 08-02

Topic: Reportable segment―Profit or loss test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: VCR Segment Revenue $500,000 – VCR Segment Expenses $624,000 = ($124,000) Loss

 

[QUESTION]

REFER TO: 08-07

39. What is the minimum amount of operating profit or loss an operating segment must have to be considered a reportable segment?
40. A) $124,000.
41. B) $127,600.
42. C) $100,000.
43. D) $130,000.
44. E) $140,000.

Answer: E

Learning Objective: 08-02

Topic: Reportable segment―Profit or loss test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: DVDs $1,000,000 + MP3s $400,000 = Total Profitable Segments $1,400,000 × 10% = $140,000 Threshold for Segment Profit/Loss Reporting

 

[QUESTION]

REFER TO: 08-07

40. What is the minimum amount of assets an operating segment must have to be considered a reportable segment?
41. A) $ 1,400,000.
42. B) $ 2,500,000.
43. C) $ 4,100,000.
44. D) $ 5,000,000.
45. E) $25,000,000.

Answer: B

Learning Objective: 08-02

Topic: Reportable segment―Asset test

Difficulty: 1 Easy

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: $14,000,000 + $6,000,000 + $5,000,000 = $25,000,000 × 10% = $2,500,000 Segment Assets

 

[QUESTION]

REFER TO: 08-07

41. Which operating segments are separately reportable under the revenue test?
42. A) DVDs only.
43. B) DVDs and MP3s.
44. C) DVDs and VCRs.
45. D) VCRs and MP3s.
46. E) DVDs, VCRs, and MP3s.

Answer: B

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: All Segments with Revenues > $660,000

 

[QUESTION]

REFER TO: 08-07

42. Which operating segments are separately reportable under the operating profit or loss test?
43. A) DVDs only.
44. B) DVDs and MP3s.
45. C) DVDs and VCRs.
46. D) VCRs and MP3s.
47. E) DVDs, VCRs, and MP3s.

Answer: B

Learning Objective: 08-02

Topic: Reportable segment―Profit or loss test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: All Segments with Profits/Losses > $140,000 Threshold for Segment Profit/Loss Reporting

 

[QUESTION]

REFER TO: 08-07

43. Which operating segments are separately reportable under the asset test?
44. A) DVDs only.
45. B) DVDs and MP3s.
46. C) DVDs and VCRs.
47. D) VCRs and MP3s.
48. E) DVDs, VCRs, and MP3s.

Answer: E

Learning Objective: 08-02

Topic: Reportable segment―Asset test

Difficulty: 1 Easy

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: All Segments with Assets > $2,500,000 Segment Assets

 

[QUESTION]

Refer to: 08-07

44. Which of the segments are separately reportable?
45. A) DVDs only.
46. B) DVDs and MP3s.
47. C) DVDs and VCRs.
48. D) VCRs and MP3s.
49. E) DVDs, VCRs, and MP3s.

Answer: E

Learning Objective: 08-02

Topic: Reportable segment―Any of the 10-percent tests

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

45. Which of the following statements is true according to U.S. GAAP regarding operating segment disclosure?
46. A) The measurement of segment profit and loss disclosure need not be similar to the measurement provided to the chief operating decision maker.
47. B) Segment information does not have to be in accordance with generally accepted accounting principles.
48. C) Disclosure of a major customer’s identity is required.
49. D) Geographic area information must be disclosed in interim financial statements.
50. E) Immaterial items must be disclosed.

Answer: B

Learning Objective: 08-03

Topic: Reportable segments―Disclosure requirements

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

46. Which of the following is a criterion for determining whether an operating segment is separately reportable?
47. A) An operating segment’s assets are 10 percent or more of combined segment assets.
48. B) An operating segment’s assets are 10 percent or more of consolidated assets.
49. C) An operating segment’s assets are 10 percent or more of combined segment liabilities.
50. D) An operating segment’s assets are 10 percent or more of consolidated liabilities.
51. E) An operating segment’s assets are 10 percent or more of corporate assets.

Answer: A

Learning Objective: 08-02

Topic: Reportable segment―Asset test

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

47. Which of the following operating segment disclosures is not required by U.S. GAAP?
48. A) Interest expense.
49. B) Intersegment sales.
50. C) Unusual items.
51. D) Depletion.
52. E) Liabilities.

Answer: E

Learning Objective: 08-03

Topic: Reportable segments―Disclosure requirements

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

48. Vapor Corporation has a fan products operating segment. With respect to the following, which is Vapor notrequired to report for this segment?
49. A) Depreciation expense.
50. B) Amortization expense.
51. C) Research and development expense.
52. D) Interest expense.
53. E) Interest income.

Answer: C

Learning Objective: 08-03

Topic: Reportable segments―Disclosure requirements

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Reporting

 

[QUESTION]

49. Which of the following must be disclosed by a geographic segment according U.S. GAAP?
50. A) Operating profit or loss.
51. B) Gross profit.
52. C) Total assets.
53. D) Revenues from external customers.
54. E) Revenues from internal customers.

Answer: D

Learning Objective: 08-04

Topic: Entitywide information―Geographic areas

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

50. Which of the following is not true for an operating segment according to U.S. GAAP?
51. A) Discrete financial information generated by the internal accounting system is available.
52. B) The segment recognizes revenues and incurs expenses.
53. C) The segment is regularly reviewed by a chief decision maker to assess performance decisions.
54. D) The segment is regularly reviewed by a chief decision maker to make resource allocations.
55. E) An organizational unit cannot be an operating segment if all of its operating transactions are only with other segments of the organization.

Answer: E

Learning Objective: 08-01

Topic: Determine operating segments

Difficulty: 1 Easy

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

51. Which of the following statements is true?
52. A) In determining reportable segments, two tests are applied and both must be met.
53. B) In determining reportable segments, three tests are applied and all three must be met.
54. C) In determining reportable segments, two tests are applied and only one must be met.
55. D) In determining reportable segments, three tests are applied and only one must be met.
56. E) In determining reportable segments, at least 80% of the revenues from external customers must be reported.

Answer: D

Learning Objective: 08-02

Topic: Reportable segment―Any of the 10-percent tests

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Reporting

 

[QUESTION]

52. According to U.S. GAAP, which of the following would be an acceptable grouping by a U.S. company for presentation of information by geographic area?
53. A) France, Germany, All Other Countries.
54. B) United States, Europe, Canada.
55. C) United States, Africa, Europe, Asia.
56. D) United States, Canada, Mexico, Germany.
57. E) North America, Spain, All Other Countries.

Answer: D

Learning Objective: 08-04

Topic: Entitywide information―Geographic areas

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

53. Which of the following would be an acceptable grouping for a U.S. company to provide information by geographic area?
54. A) United States, All Other Countries.
55. B) United States, Europe, Taiwan.
56. C) United States, Asia, Germany.
57. D) United States, Central America, Mexico, Germany.
58. E) South America, Spain, All Other Countries.

Answer: A

Learning Objective: 08-04

Topic: Entitywide information―Geographic areas

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

54. What information does U.S. GAAP require to be disclosed for a major customer?
55. A) The identity of the customer.
56. B) The operating segment reporting sales to the customer.
57. C) The geographic area of the customer.
58. D) The specific products or services purchased by the customer.
59. E) The length of time the customer has been a customer of the company.

Answer: B

Learning Objective: 08-05

Topic: Entitywide information―Major customers

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

55. How should revenues be recognized in interim periods?
56. A) In the same way as they are recognized on an annual basis.
57. B) On the cash basis.
58. C) On an annualized basis.
59. D) On a seasonal basis.
60. E) There are no revenues recognized in interim periods.

Answer: A

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

56. Which of the following is not correct regarding inventory procedures reported in an interim financial statement?
57. A) LIFO liquidations a company expects to be replaced by year-end should be recorded in cost of goods sold, quantified at expected replacement cost rather than original LIFO cost.
58. B) Lower-of-cost-or-net realizable value adjustments are not made for the interim period if they are expected to reverse by the end of the year.
59. C) Variances in a standard costing system are reported at the end of the interim period unless they are expected to be absorbed by year-end.
60. D) FIFO is remeasured using the LIFO method in an interim financial statement.
61. E) LIFO liquidations not expected to be replaced by the end of the year are reflected in cost of goods sold at original LIFO cost.

Answer: D

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

REFERENCE: 08-08

Cement Company, Inc. began the first quarter with 1,000 units of inventory costing $25 per unit.  During the first quarter, 3,000 units were purchased at a cost of $40 per unit, and sales of 3,400 units at $65 per units were made.  During the second quarter, the company expects to replace the units of beginning inventory sold at a cost of $45 per unit.  Cement Company uses the LIFO method to account for inventory.

 

[QUESTION]

REFER TO: 08-08

57. What is the correct journal entry to record cost of goods sold at the end of the first quarter?

 

A)	Inventory	8,000
	Cost of Goods Sold		8,000
B)	Inventory	8,000
	Excess of replacement cost over historical cost of LIFO liquidation		8,000
C)	Cost of goods sold	138,000
	Inventory		130,000
	Excess of replacement cost over historical cost of LIFO liquidation		8,000
D)	Cost of goods sold	130,000
	Excess of replacement cost over historical cost of LIFO liquidation	8,000
	Inventory		138,000
E)	No journal entry is required

 

Answer: C

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: 3000 × $40 + 400 × $45 = $138,000 COGS

 

[QUESTION]

REFER TO: 08-08

58. The amount of gross profit for the first quarter is:
59. A) $ 83,000
60. B) $ 87,000
61. C) $ 90,000
62. D) $221,000
63. E) $250,000

Answer: A

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: Rev (3,400 × $65) $221,000 – COGS (3000 × $40 + 400 × $45) $138,000 = $83,000 Gross Profit

 

[QUESTION]

59. Betsy Kirkland, Inc. incurred a flood loss during the first quarter of 2018 that is deemed both unusual and not expected to recur again in the near future. The loss is considered immaterial to the twelve-month period, but is material in amount relative to the first quarter.  The proper accounting treatment in the first quarter interim statement is to:
60. A) Ignore the loss.
61. B) Record the loss in the first quarter as an unusual loss, net of income taxes.
62. C) Record one-fourth of the loss in the first quarter as an unusual loss, net of income taxes.
63. D) Ignore the loss in the first quarter, and record it in the annual statement only.
64. E) Record the loss in the first quarter, but not as an unusual loss, and disclose the loss in a separate note or in the income statement as a separate line item.

Answer: A

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

60. How should a change from one generally accepted accounting principle to another accepted principle be handled in a third-quarter income statement?
61. A) Retrospectively restate the first-quarter income statement, net of income taxes, as though the change occurred at the beginning of the year.
62. B) Postpone recording of the change to the annual income statement.
63. C) Record the change in the third-quarter income statement, net of income taxes.
64. D) Adjust financial statements for each prior period presented to reflect the effects of the new principle in those reported periods.
65. E) These changes are prohibited by GAAP.

Answer: D

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

61. Which of the following is not a required disclosure in an interim financial report?
62. A) Sales or gross revenues.
63. B) Provision for income taxes.
64. C) Cash flow information.
65. D) Changes in accounting principles.
66. E) Seasonal revenues and expenses.

Answer: C

Learning Objective: 08-07

Topic: Interim reporting―Disclosures

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

62. Which of the following is not a required disclosure in an interim financial report?
63. A) Net income.
64. B) Earnings per share.
65. C) Gross profit.
66. D) Significant changes in estimates or provisions for income taxes.
67. E) Disposal of a component, net of income taxes.

Answer: C

Learning Objective: 08-07

Topic: Interim reporting―Disclosures

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

63. Which of the following items of information are required to be included in interim reports for each operating segment?

(I.) Revenues from external customers

(II.) Segment profit or loss

(III.) Reconciliation of segment profit or loss to the enterprise’s total income before taxes

(IV.) Intersegment revenues

1. A) I and III only.
2. B) I and II only.
3. C) I, II and III.
4. D) II and III only.
5. E) I, II, III, and IV.

Answer: E

Learning Objective: 08-07

Topic: Interim reporting―Disclosures

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

64. If a company does not include a balance sheet and a statement of cash flows in an interim report, then which of the following items must be separately disclosed for that interim period?
65. A) The balance of long-term liabilities.
66. B) Net working capital.
67. C) The change in stockholders’equity.
68. D) The balance of cash and cash equivalents.
69. E) The balance of retained earnings.

Answer: C

Learning Objective: 08-07

Topic: Interim reporting―Disclosures

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

65. What are the two approaches that can be followed in preparing interim reports?
66. A) Indiscrete and terminal.
67. B) Discrete and terminal.
68. C) Metric and integral.
69. D) Discrete and integral.
70. E) Discrete and metric.

Answer: D

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

66. Which of the following is reported for interim financial reports using the discrete approach?
67. A) Income tax expense.
68. B) Seasonal items.
69. C) Change in accounting principle.
70. D) Property tax expense.
71. E) Discontinued operations.

Answer: E

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

67. Which of the following is reported for interim financial reports using the integral approach?
68. A) Bonus expense.
69. B) Gross profit.
70. C) Cash basis accounting.
71. D) Current market value.
72. E) Segment level management compensation.

Answer: A

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 3 Hard

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

68. How should seasonal revenues be reported in an interim report?
69. A) Disclose the seasonal nature of business operations, and include a pro forma report for the next 12-month period.
70. B) Disclose the seasonal nature of business operations but do not include other reports supplemental to the interim report.
71. C) Disclose the seasonal nature of business operations, and consider a report for the 12-month period ended at the interim date to supplement the interim report.
72. D) The financial statements should be adjusted to reflect the assumption that no seasonal revenues could be recognized.
73. E) Seasonal revenues have no particular reporting requirement.

Answer: C

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

69. According to authoritative accounting literature, which of the following are required to be disclosed in interim reports?
70. A) Cash flows from investing activities.
71. B) Change in cash.
72. C) Total current liabilities.
73. D) Total assets.
74. E) Gross revenues.

Answer: E

Learning Objective: 08-07

Topic: Interim reporting―Disclosures

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

70. All of the following are required to be reported in interim financial statements with respect to material operating segments,except:
71. A) Segment assets.
72. B) Segment revenues from external customers.
73. C) Intersegment revenues.
74. D) Segment profit or loss.
75. E) Reconciliation of segment profit or loss to total income before taxes.

Answer: A

Learning Objective: 08-07

Topic: Interim reporting―Disclosures

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

71. What is the appropriate treatment in an interim financial report for inventory with a net realizable value below cost?
72. A) The loss should always be recorded in the interim period in which net realizable value drops below cost.
73. B) The loss should be recorded in the interim period in which net realizable value drops below cost if the loss is considered temporary.
74. C) The loss should be recorded in the interim period in which net realizable value drops below cost if the loss is considered permanent.
75. D) The loss should be ignored for interim reporting purposes.
76. E) There is no loss to report.

Answer: C

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Understand

AACSB: ReflectiveThinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

72. What is the appropriate treatment in an interim financial report for inventory that has cost below net realizable value?
73. A) The loss should always be recorded in the interim period in which cost drops below net realizable value.
74. B) The loss should be recorded in the interim period in which cost drops below net realizable value if the loss is considered temporary.
75. C) The loss should be recorded in the interim period in which cost drops below net realizable value if the loss is considered permanent.
76. D) The loss should be ignored for interim reporting purposes.
77. E) There is no loss to report.

Answer: E

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

73. What is the appropriate treatment in an interim financial report for a LIFO liquidation?
74. A) The LIFO liquidation is always ignored for interim reporting.
75. B) The LIFO liquidation should always be reflected in gross profit on an interim income statement.
76. C) The LIFO liquidation should always result in replacement cost valuation of ending inventory on the interim balance sheet and the interim income statement.
77. D) The LIFO liquidation should always result in replacement cost valuation of ending inventory on the interim income statement but not the interim balance sheet.
78. E) The LIFO liquidation should only be reflected in gross profit on an interim income statement if it is determined that it will not be replaced by year-end.

Answer: E

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

74. Which of the following statements is true regarding the reporting of revenues in an interim report?
75. A) Revenues should be recognized on the income tax basis for interim reporting.
76. B) Revenues should be recognized in interim periods in the same way as they are on an annual basis.
77. C) Projected losses on long-term contracts should be deferred to the annual report.
78. D) The percentage-of-completion method of reporting long-term construction projects is not an acceptable method for interim reporting.
79. E) Revenues should be recognized on the cash basis of accounting for interim reporting.

Answer: B

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

75. What is the appropriate treatment in an interim financial report for variances arising from the use of a standard costing system?
76. A) The variances are always ignored for interim reporting.
77. B) The variances should always be reflected in gross profit on an interim income statement.
78. C) The variances expected to be absorbed by year-end should not be reflected in the interim statement.
79. D) The variances should always be reflected in the interim income statement but not the interim balance sheet.
80. E) The variances should only be reflected in the interim balance sheet.

Answer: C

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

76. Which of the following costs require similar treatment to Property Tax Expense in an interim financial report?

1) Annual major repairs.

2) Advertising expense.

3) Bonus expense, if estimable.

4) Quantity discounts based on annual sales.

1. A) 1 and 2
2. B) 1, 2, and 3
3. C) 1, 2, and 4
4. D) 2, 3, and 4
5. E) 1, 2, 3, and 4

Answer: E

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

77. How should discontinued operations be reported in an interim report?
78. A) Include in the gain or loss section of the interim report and include the tax with all other income tax.
79. B) Include as discontinued operations, net of tax, if the component of the business is classified as held-for-sale or is discontinued in the interim period.
80. C) Include net of the tax estimated specifically for the discontinued operations.
81. D) Include with other operations in the interim period but include the amount net of its specific tax.
82. E) Include with other operations in interim periods until the annual financial statement is prepared.

Answer: B

Learning Objective: 08-07

Topic: Interim reporting―Accounting treatment

Difficulty: 3 Hard

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

REFERENCE: 08-09

Provo, Inc. has an estimated annual tax rate of 35 percent in the first quarter of 2018.  Pretax income for the first quarter was $300,000.  At the end of the second quarter of 2018, Provo expects the annual tax rate to be 32 percent because of anticipated tax credits.  Pretax income for the second quarter was $350,000.  Assume no items in either quarter requiring the net-of-tax presentation.

 

[QUESTION]

REFER TO: 08-09

78. How much income tax expense is recognized in the first quarter of 2018?
79. A) $
80. B) $ 26,250.
81. C) $ 96,000.
82. D) $105,000.
83. E) $112,000.

Answer: D

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 1 Easy

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: 1^st Qtr Income $300,000 × .35 = $105,000 1^st Qtr Tax Expense Reported

 

[QUESTION]

REFER TO: 08-09

79. How much income tax expense is recognized in the second quarter of 2018?
80. A) $103,000.
81. B) $104,000.
82. C) $112,000.
83. D) $122,500.
84. E) $208,000.

Answer: A

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: 2^nd Qtr Income $350,000 × .32 = $112,000 – 1^st Qtr Adjustment ($300,000 × .03) $9,000 = $103,000 2^nd Qtr Tax Expense Reported

 

REFERENCE: 08-10

Baker Corporation changed from the LIFO method to the FIFO method for inventory valuationduring 2018.  Baker has an effective income tax rate of 30 percent and 100,000 shares of common stock issued and outstanding.  The following additional information is available:

 

	Cost of goods sold	Cost of goods sold		After-tax
	FIFO	LIFO	Difference	Difference
Prior to 2018	$  40,000	$75,000	$35,000	$22,750
1st quarter 2018	$  10,000	$18,000	$  8,000	$  5,200
Net income before effect of accounting change:
1st quarter 2017		$300,000
1st quarter 2018		$500,000

 

[QUESTION]
REFER TO: 08-10

80. Assuming Baker makes the change in the first quarter of 2018, how much is reported as net income for the first quarter of 2018?
81. A) $492,000.
82. B) $494,800.
83. C) $500,000.
84. D) $505,200.
85. E) $527,950.

Answer: D

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: 1sr Qtr 2018 Income $500,000 + Accounting Change Effect (net of tax) $5,200 = $505,200 1^st Qtr 2018 Net Income

 

[QUESTION]

REFER TO: 08-10

81. Assuming Baker makes the change in the first quarter of 2018, compute net income per common share.
82. A) $4.92.
83. B) $4.95.
84. C) $5.00.
85. D) $5.05.
86. E) $5.28.

Answer: D

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 3 Hard

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: $505,200 1^st Qtr Income / Common Stock Shares Outstanding 100,000 = $5.05 EPS

 

[QUESTION]

REFER TO: 08-10

82. Assuming Baker makes the change in the first quarter of 2017, how much is reported as net income for the first quarter of 2017?
83. A) $300,000.
84. B) $322,750.
85. C) $335,000.
86. D) $265,000.
87. E) $277,250.

Answer: B

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: 1^st Qtr 2017 Income $300,000 + Accounting Change Effect (net of tax) $22,750 = $322,750 1^st Qtr 2017 Net Income

 

[QUESTION]

REFER TO: 08-10

83. Assuming Baker makes the change in the first quarter of 2018 and that $400,000 net income is earned during the second quarter, how much is reported as net income for the second quarter of 2018?
84. A) $400,000.
85. B) $405,200.
86. C) $427,950.
87. D) $894,850.
88. E) $905,200.

Answer: A

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: No Effects of the 1^st Qtr Change is Recorded in the 2^nd Qtr — $400,000

 

[QUESTION]

84. For companies that provide quarterly reports, how is the fourth quarter reported?
    A) Every company that reports for the first three quarters must also publish a fourth-quarter report.
85. B) A fourth-quarter report is not required.
86. C) Companies must publish a fourth-quarter report if there are significant changes from the third quarter.
87. D) The SEC requires selected quarterly financial data to be reported separately as a fourth-quarter report.
88. E) When fourth-quarter financial statements are provided, special accounting items of that quarter must also be separately disclosed in the annual financial statements.

Answer: B

Learning Objective: 08-07

Topic: Interim reporting―Disclosures

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

85. According to International Financial Reporting Standards (IFRS), all of the following are part of minimum components of interim financial reporting except:
86. A) A condensed statement of cash flows.
87. B) A condensed statement of financial position.
88. C) A condensed statement of accumulated pension liabilities.
89. D) A condensed statement of net income and comprehensive income.
90. E) Accrual of income tax expense at the end of each interim period.

Answer: C

Learning Objective: 08-07

Topic: IFRS―Interim reporting

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

86. Which of the following is false with regard to accounting standards for segment reporting according to International Financial Reporting Standards (IFRS)and U.S. GAAP?
87. A) IFRS and U.S. GAAP do not each require disclosure of segment liabilities.
88. B) IFRS and U.S. GAAP both require disclosure of intangible assets attributable to geographic segments.
89. C) According to IFRS, operating segments can be based on products and services.
90. D) According to IFRS, operating segments can be based on geographic areas.
91. E) IFRS and U.S. GAAP both require disclosure of total assets.

Answer: B

Learning Objective: 08-06

Topic: IFRS―Segment reporting

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

 

Essay:

 

[QUESTION]

87. What is the major objective of segment reporting?

 

Answer: According to U.S. GAAP, the objective of segment reporting is to provide users of financial statements information that allows them to: (a) understand the enterprise’s performance better; (b) assess such enterprise’s prospects for future net cash flows; and (c) make informed judgments about the enterprise as a whole.

Learning Objective: 08-01

Difficulty: 2 Medium

Topic: Determine operating segments

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Communication

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

88. What is meant by the term: disaggregated financial information?

 

Answer: Disaggregated financial information is the data of a reporting unit that has been broken down into components so that the separate parts can be identified and studied.

Learning Objective: 08-01

Topic: Determine operating segments

Difficulty: 1 Easy

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

89. Why arepublicly traded companies in the U.S. required to publish quarterly financial statements?

 

Answer: Publicly traded U.S. companies must publish quarterly reports to provide investors and creditors with relevant information on a timelier basis as compared to information being provided once per year in an annual report.

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 1 Easy

Blooms: Understand

AACSB: Reflective Thinking

AACSB: Communication

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

90. How does a company measure income tax expense to be reported in an interim period?

 

Answer: Income tax expense related to interim period income is determined by estimating the effective tax rate for the entire year.  That rate is then applied to the cumulative pre-tax income earned to date to determine the cumulative income tax to be recognized to date.  The amount of income tax recognized in the current interim period is the difference between the cumulative income tax to be recognized to date and the income tax recognized in prior interim periods.

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Communication

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

91. What two disclosure guidelines for operating segment information are designed to ensure the consistency of data reported from year to year?

 

Answer: 1) If an operating segment does not pass a test for current segment disclosure but was a reportable segment in the past year(s) included in the current comparative report and management deems it as having continued significance, then that segment should be disclosed currently to be comparative to prior periods.  2) If an operating segment is to be disclosed in a current year and was not separately disclosed in prior comparative years, then prior years must be restated to show that segment comparatively with the current year.

Learning Objective: 08-02

Topic: Reportable segments―Other guidelines

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AACSB: Communication

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

92. Describe the test to determine whether a sufficient number of operating segments are disclosed.

 

Answer: For operating segments deemed reportable by having passed a 10% threshold test of revenues, operating profit or loss, and assets, the total sales revenues to unaffiliated customers are summed.  If this sum is less than 75% of total sales to outsiders, then there is not a sufficient number of operating segments disclosed and there should be additional segment disclosure.

Learning Objective: 08-02

Topic: Reportable segments―Other guidelines

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AACSB: Communication

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

93. What approach is used, according to U.S. GAAP, for determining how a business is divided into segments?

 

Answer: The management approach for segment determination is used.

Learning Objective: 08-01

Topic: Determine operating segments

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

94. According to U.S. GAAP, what general information about an operating segment must be disclosed?

 

Answer: The general information about an operating segment that needs to be disclosed per U.S. GAAP includes: (a) the factors considered when identifying operating segments; and (b) the types of products and services from which each operating segment derives its revenues.

Learning Objective: 08-03

Topic: Reportable segments―Disclosure requirements

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

95. According to U.S. GAAP, how should general corporate costs be allocated to individual segments to determine segment profit or loss?

 

Answer: U.S. GAAP does not require general corporate costs to be allocated to individual segments to determine segment profit or loss if this is not done for internal purposes.  Any allocations that are made must be done on a reasonable basis.

Learning Objective: 08-02

Topic: Reportable segment―Profit or loss test

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Communication

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

96. List the five aggregation criteria that need to be considered by management in determining whether business activities and environments are similar.

 

Answer: The five aggregation criteria are: (a) the nature of the products and services provided by each operating segment; (b) the nature of the production process; (c) the type or class of customer; (d) distribution methods used; and (e) if applicable, the nature of the regulatory environment.

Learning Objective: 08-02

Topic: Reportable segment―Any of the 10-percent tests

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Communication

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

97. What is the purpose of the U.S. GAAP seventy-five percent requirement for industry segment disclosure?

 

Answer: A substantial portion of the company’s operations should be presented in disaggregated form.  The seventy-five percent requirement is the GAAP guideline in making sure companies report information about a sufficient number of segments.

Learning Objective: 08-02

Topic: Reportable segments―Other guidelines

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AACSB: Communication

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

98. According to U.S. GAAP, what revenues and expenses included in segment profit or loss need to be disclosed?

 

Answer: The revenues and expenses included in segment profit or loss that need to be disclosed include:(a) revenues from external customers; (b) revenues from transactions with other operating segments; (c) interest revenue and interest expense (reported separately);net interest revenue may be reported for finance segments if this measure is used internally for evaluation; (d) depreciation, depletion, and amortization expense; (e) unusualitems; (f) equity in the net income of investees accounted for by the equity method; (g) income tax expense or benefit; and (h) other significant noncash items included in segment profit or loss.

Learning Objective: 08-03

Topic: Reportable segments―Disclosure requirements

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Communication

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

99. What related items need to be disclosed in regard to total segment assets?

 

Answer: The related items in regard to total segment assets that must be disclosed include:

(a) investment in equity method affiliates; and (b) expenditures for additions to long-lived assets.

Learning Objective: 08-03

Topic: Reportable segments―Disclosure requirements

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

100. Which items of information are required to be included in interim reports for each operating segment?

 

Answer: The items of information required to be included in interim reports for each operating segment are:

(a) revenues from external customers; (b) intersegment revenues; (c) segment profit or loss; and(d) total assets, if there has been a material change from the last annual report.

Learning Objective: 08-07

Topic: Interim reporting―Disclosures

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AACSB: Communication

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

101. Which two items of information must be reported for: (1) the domestic country; (2) all foreign countries in which the enterprise derives revenues or holds assets; and (3) each foreign country in which a material amount of revenues is earned?

 

Answer: The two items of information that must be reported are revenues from external customers and long-lived assets.

Learning Objective: 08-04

Topic: Entitywide information―Geographic areas

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

Problems:

 

[QUESTION]

102. Burnside Corp. is organized into four operating segments. The following segment information was generated by the internal reporting system in 2018:

Required:

1) What was the profit or loss of each of these segments?

2) Prepare the profit or loss test to determine which of these segments was separately reportable.

 

Answer: Requirements (1) and (2)

 

Learning Objective: 08-02

Topic: Reportable segment―Profit or loss test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

REFERENCE: 08-11

Faru Co. identified five industry segments: (1) plastics, (2) metals, (3) lumber, (4) paper, and (5) finance.  The company properly consolidated the segments when it prepared its annual financial statements.  Information describing each segment is presented below (in thousands).

 

	Plastics	Metals	Lumber	Paper	Finance
Sales to outside parties	$8,215	$2,787	$827	$451	$0
Intersegment revenues transfers	138	170	125	140	0
Interest income from outside parties	0	25	8	0	242
Interest income from intersegment loans	0	0	0	0	207
Operating expenses	5,088	2,096	1,191	753	21
Interest expense	79	21	66	40	113
Tangible assets	1,678	3,882	408	729	135
Intangible assets	94	469	0	62	863

 

[QUESTION]

REFER TO: 08-11

103. Prepare the revenue test and determine which of these segments was separately reportable.

 

Answer: Revenues include sales to outside parties, intersegment revenues transfers, and interest income.

 

Reportable segment = at least $1,333.5 (in thousands) of revenues.

 

Learning Objective: 08-02

Topic: Reportable segment―Revenue test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

REFER TO: 08-11

104. Prepare the profit or loss test and determine which of these segments was separately reportable.

 

Answer: Revenues include sales to outside parties, intersegment revenues transfers, and interest income.  Expenses include operating expenses and interest expense.

 

 

 

Reportable = at least $436.6 (in thousands) of profit or loss.

 

Learning Objective: 08-02

Topic: Reportable segment―Profit or loss test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

REFER TO: 08-11

105. Prepare the asset test and determine which of these segments was separately reportable.

 

Answer:  Assets include tangible assets and intangible assets.

 

Reportable = at least $832. (in thousands) of assets

 

Learning Objective: 08-02

Topic: Reportable segment―Asset test

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

106. Blanton Corporation is comprised of five operating segments. Information about each of these segments is as follows (in thousands):

Required:

1. A) Which operating segments are reportable under the revenue test?
2. B) What is the total amount of revenues in applying the revenue test?
3. C) Which operating segments are reportable under the profit or loss test?
4. D) In applying the profit or loss test, what is the minimum amount an operating segment must have in order to meet the profit or loss test for a reportable segment?
5. E) Which operating segments are reportable under the asset test?
6. F) In applying the asset test, what is the minimum amount an operating segment must have in order to meet the asset test for a reportable segment?
7. G) Which operating segments are reportable?
8. H) According to the test results for reportable segments, is there a sufficient number of reported segments or should any additional segments also be disclosed? Explain the reason for your conclusion.

 

Answer:

 

1. There are a sufficient number of reportable segments per the reportable tests,

because total sales to outsiders = $397 (numbers all in thousands), 75% of $397 =

$298, and the four reportable segments have total sales to outsiders of $383.  $383

exceeds the threshold for the 75% test.

 

Learning Objective: 08-02

Topic: Reportable segment―Any of the 10-percent tests

Topic: Reportable segments―Other guidelines

Difficulty: 3 Hard

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

REFERENCE: 08-12

On February 23, 2018, Cleveland, Inc. paid property taxes of $300,000 for the calendar year 2018.

 

[QUESTION]

REFER TO: 08-12

107. How much of this expense should be included in Cleveland’s net income for the quarter ending March 31, 2018?

 

Answer: $75,000 [$300,000/4].

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 1 Easy

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

REFER TO: 08-12

108. Prepare the journal entry for the payment of property taxes on February 23, 2018.

 

Answer:

Prepaid property taxes	225,000
Property tax expense	75,000
Cash		300,000

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

REFERENCE: 08-13

Gregor Inc. uses the LIFO cost-flow assumption to value inventory.  Inventory for Gregor on January 1, 2018 was 100 units at a LIFO cost of $25 per unit.  During the first quarter of 2018, 200 units were purchased costing an average of $40 per unit, and sales of 265 units at a retail price of $50 per unit were made.

 

[QUESTION]

REFER TO: 08-13

109. Assuming Gregor does not expect to replace the units of beginning inventory sold, what is the amount of cost of goods sold for the quarter ended March 31, 2018?

 

Answer: $9,625 [(200 × $40) + (65 × $25)].

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

REFER TO: 08-13

110. Assuming Gregor expects to replace the units of beginning inventory sold before the year-end at a cost of $41, what is the amount of cost of goods sold for the quarter ended March 31, 2018?

 

Answer: $10,665 [(200 × $40) + (65 × $41)].

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

REFERENCE: 08-14

Harrison Company, Inc. began operations on January 1, 2017, and applied the LIFO method for inventory valuation.   On June 10, 2018, Harrison adopted the FIFO method of accounting for inventory.  Additional information is as follows:

 

	Net Income Before	Cost of goods sold	Cost of goods sold
	Change in Principle	___FIFO__	___LIFO___
First quarter 2017	$   525,000	$32,000	$  20,000
Second quarter 2017	600,000	29,000	20,000
Third quarter 2017	575,000	27,000	20,000
Fourth quarter 2017	650,000	25,000	20,000
	$2,350,000	$113,000	$  80,000
First quarter 2018	$   700,000	$  23,000	$  20,000
Second quarter 2018	$   750,000	$  21,000	$  20,000

 

The LIFO method was applied during the first quarter of 2018 and the FIFO method was applied during the second quarter of 2018 in computing income, above.  Harrison’s effective income tax rate is 40 percent.  Harrison has 500,000 shares of common stock outstanding at all times.

 

[QUESTION]

REFER TO: 08-14

111. Compute the after-tax effect of Harrison’s change in inventory method.

 

Answer:

		Net Income before	Cost of goods sold	Cost of goods sold		After-tax
		Change in Principle	FIFO	LIFO	Difference	Difference
First quarter 2017		$    525,000	$     32,000	$20,000	$ 12,000	$   7,200
Second quarter 2017		600,000	29,000	20,000	9,000	5,400
Third quarter 2017		575,000	27,000	20,000	7,000	4,200
Fourth quarter 2017		650,000	25,000	20,000	5,000	3,000
		$ 2,350,000	$   113,000	$    80,000	$ 33,000	$ 19,800
First quarter 2018		$     700,000	$     23,000	$    20,000	$   3,000	$   1,800
Second quarter 2018		$     750,000	$     21,000	$    20,000	$   1,000	$      600

 

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 3 Hard

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

REFER TO: 08-14

112. Prepare a schedule showing the calculation of net income and earnings per share to be reported by Harrison for the three-month period and the six-month period ended June 30, 2017 and 2018.

 

Answer:

Net Income and Earnings per Share for 2nd Quarter 2018:

 

	Three Months Ended June 30		Six Months Ended June 30
	2017	2018	2017	2018
Income before effect of accounting change	$600,000	$750,000	$1,125,000	$1,450,000
Effect of accounting change, net of tax	5,400	600	12,600	2,400
Net income	$605,400	$750,600	$1,137,600	$1,452,400
Earnings per share (500,000 shares):	$1.21	$1.50	$2.28	$2.90

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 3 Hard

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

REFERENCE: 08-15

The following information for Urbanski Corporation relates to the three months ending June 30, 2018:

		Units		Price per unit
Beginning inventory		11,000		$10
Purchases		75,000		$16
Sales		80,000		$25
Ending inventory		6,000

 

Urbanski uses the LIFO method to account for inventory, and expects at least 15,000 units to be on hand in the ending inventory at year-end.  Purchases made in the last six months are expected to cost an average of $18 per unit.

 

[QUESTION]

REFER TO: 08-15

113. Compute cost of goods sold and gross profit for the quarter ending June 30, 2018.

 

Answer:

Determination of CostofGoodsSold and Gross Profit

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

REFER TO: 08-15

114. Prepare the journal entries to reflect the sales and cost of goods sold, assuming Urbanski expects to maintain 11,000 units in inventory at year-end.

 

Answer:

Journal Entries to Record Sales and CostofGoodsSold

 

Cash or accounts receivable	2,000,000
Sales revenue		2,000,000
Costofgoodssold	1,290,000
Inventory		1,250,000
Excess of replacement cost over
historical cost of  LIFO liquidation		40,000

Excess of replacement cost over historical cost for beginning inventory liquidated:

[($18 – $10) × 5,000 units]

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

REFER TO: 08-15

115. Prepare the journal entries to reflect the sales and cost of goods sold, assuming Urbanski does not expect to replace the liquidated inventory at year-end.

 

Answer:

Journal Entries to Record Sales and CostofGoodsSold

 

Cash or accounts receivable	2,000,000
Sales revenue		2,000,000
Costofgoodssold	1,250,000
Inventory		1,250,000

Learning Objective: 08-06

Topic: Interim reporting―Accounting treatment

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

 

[QUESTION]

116. For each of the following situations, select the best answer concerning segment disclosures of reportable segments.
117. A) Required to be disclosed by an operating segment, but not a geographical segment.
118. B) Required to be disclosed by a geographical segment, but not an operating segment.
119. C) Required to be disclosed by both an operating segment and a geographical segment.
120. D) Not required to be disclosed by either an operating segment or a geographical segment.

___ 1. Factors used to identify segments.

___ 2. Revenues from external customers.

___ 3. Types of products and services from which each segment derives its revenues.

___ 4. Names of major customers.

___ 5. Revenues from transactions with other segments.

___ 6. Interest revenue.

___ 7. Long-lived assets.

___ 8. Discontinued operations, when applicable.

___ 9. Income tax expense or benefit.

___10. Revenues for the domestic country.

___11. Cash flow information

Answer: (1)  A; (2)  C; (3)  A; (4)  D; (5)  A; (6)  A; (7)  C; (8)  A; (9)  A; (10)  B; (11) D

Learning Objective: 08-03

Learning Objective: 08-04

Topic: Reportable segments―Other guidelines

Topic: Entitywide information―Geographic areas

Difficulty: 3 Hard

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement