江西财经大学高级财务会计国际学院题库

Advanced Accounting, 11e (Beams/Anthony/Bettinghaus/Smith)
Chapter 15 Segment and Interim Financial Reporting
Multiple Choice Questions
1) Similar operating segments may be combined if the segments have similar economic characteristics. Which one of the following is a similar economic characteristic under GAAP?
A) The segments' management teams
B) The tax reporting law sections
C) The distribution method for products or services
D) The expected rates of return and risk for the segments' productive assets
Answer: C
Objective: LO2
Difficulty: Easy
2) Which of the following conditions would not indicate that two business segments should be classified as a single operating segment?
A) They have similar amounts of intersegment revenues or expenses.
B) They have a similar distribution method for products.
C) They have similar production processes.
D) They have similar products or services.
Answer: A
Objective: LO2
Difficulty: Easy
3) GAAP requires that segment information be reported
A) by geographics, without regard to size of the segment.
B) by geographics, without regard to industry or product-line.
C) however management organizes the enterprise into units for internal decision-making and performance-evaluation purposes.
D) by industry or product-line, without regard to geographics.
Answer: C
Objective: LO1
Difficulty: Easy
4) GAAP requires disclosures for each reportable operating segment for each of the following, except for
A) Revenues.
B) Depreciation expense.
C) R&D expenditures.
D) Extraordinary items.
Answer: C
Objective: LO4
Difficulty: Easy
5) What is the threshold for reporting a major customer?
A) 5 percent of revenues
B) 5 percent of profits
C) 10 percent of revenues
D) 10 percent of profits
Answer: C
Objective: LO6
Difficulty: Easy
6) Cole Company has the following 2011 financial data:
Consolidated revenue per income statement $800,000
Intersegment sales 200,000
Intersegment transfers 100,000
Combined revenues of all segments $1,100,000
Cole Company should add segments if
A) the sum of its segments' external revenue does not exceed $600,000.
B) the sum of its segments' external revenue does not exceed $825,000.
C) the sum of its segments' revenue including intersegment revenue does not exceed $600,000.
D) the sum of its segments' revenue including intersegment revenue does not exceed $825,000. Answer: A
Explanation: A) (75% of $800,000 = $600,000)
Objective: LO3
Difficulty: Moderate
7) Which of the following is not a quantitative threshold for determining a reportable segment?
A) Segment assets are 10% or more of the combined assets of all operating segments.
B) The absolute value of a segment's profit or loss is 10% or more of the greater of (1) the combined reported profit of all operating segments that reported a profit or (2) the absolute value of the combined reported loss of all operating segments that reported a loss.
C) Segment reported revenue, including intersegment revenues, is 10% or more of the combined revenue (both internal and external) of all operating segments.
D) Segment residual profit after the cost of equity is 10% or more of the combined residual profit of all operating segments.
Answer: D
Objective: LO2
Difficulty: Easy
8) For an operating segment to be considered a reporting segment under the revenue threshold, its reported revenue must be 10% or more of
A) the combined enterprise revenues, eliminating all relevant intracompany transfers and balances.
B) the combined revenues, excluding intersegment revenues, of all operating segments.
C) the combined revenues, including intersegment revenues, of all operating segments.
D) the consolidated revenue of all operating segments.
Answer: C
Objective: LO2
Difficulty: Easy
9) An enterprise has eight reporting segments. Five segments show an operating profit and three segments show an operating loss. In determining which segments are classified as reporting segments under the operating profits test, which of the following statements is correct?
A) The test value for all segments is 10% of consolidated net profit.
B) The test value for profitable segments is 10% or more of those segments reporting a profit, and the test value for loss segments is 10% or more of those segments reporting a loss.
C) The test value for loss segments is 10% of the greater of (a) the absolute value of the sum of those segments reporting losses, or (b) 10% of consolidated net profit.
D) The test value for all segments is 10% of the greater of (a) the absolute value of the sum of those segments reporting profits, or (b) the absolute value of the sum of those segments reporting losses.
Answer: D
Objective: LO2
Difficulty: Moderate
10) Dott Corporation experienced a $100,000 extraordinary loss in the second quarter of 2011 in their East Coast operating segment. The loss should be recognized
A) only at the consolidated report level at the end of the year.
B) entirely in the second quarter of 2011 in the East Coast operating segment.
C) in equal amounts allocated to the remaining three quarters of 2011 at the corporate level.
D) in equal amounts allocated to the remaining three quarters of 2011 of the East Coast segment. Answer: B
Objective: LO7
Difficulty: Moderate
11) Which one of the following operating segment disclosures is not required by GAAP?
A) Total Assets
B) Equity
C) Intersegment sales
D) Extraordinary items
Answer: B
Objective: LO4
Difficulty: Easy
12) Which one of the following operating segment information items is not directly named by GAAP to be reconciled to consolidated totals?
A) Assets
B) Liabilities
C) Revenues
D) Profit or loss
Answer: B
Objective: LO5
Difficulty: Easy
13) What is the purpose of interim reporting?
A) Provide shareholders with more timely information
B) Provide shareholders with more accurate information
C) Provide shareholders with more extensive detail about specific accounts and transactions
D) Provide shareholders with more current audited information
Answer: A
Objective: LO7
Difficulty: Easy
14) The following table is provided in the disclosures for interim reporting by Bigg Company, regarding the location of their assets.
Based on the table, which of the following statements is true?
A) Only the . and Mexico divisions would be reportable geographic divisions.
B) The ., Mexico and Canada divisions would be reportable geographic divisions.
C) All geographic divisions would be reportable, except for "other."
D) All geographic divisions would be reportable.
Answer: B
Explanation: B) Total assets for all divisions = $4,500,000, therefore those divisions with at least $4,500,000 × 10% or $450,000 would be considered reportable geographic divisions. Objective: LO2
Difficulty: Moderate
15) Jacana Company uses the LIFO inventory method. During the second quarter, Jacana experienced
a 100-unit liquidation in its LIFO inventory at a LIFO cost of $430 per unit. Jacana considered the liquidation temporary and expects to replace the units in the third quarter at an estimated replacement cost of $460 a unit. The cost of goods sold computation in the interim report for the second quarter will
A) include the 100 liquidated units at the $460 estimated replacement unit cost.
B) include the 100 liquidated units at the $430 LIFO unit cost.
C) be understated by $3,000.
D) be overstated by $3,000.
Answer: A
Objective: LO7
Difficulty: Moderate
16) How does GAAP view interim accounting periods?
A) As discrete units for which net income may be separately determined
B) As integral units of the entire year for which each interim period is an essential part of an annual period
C) As integral units of the entire year with each interim period as an independent accounting period
D) As discrete units of the entire year using the same principles that are applied to the annual period
Answer: B
Objective: LO7
Difficulty: Easy
17) In general, GAAP encourages the identification of reportable segments based on the following:
A) Reported segments must account for at least 75% of all external and inter-segment sales.
B) Reported segments must ideally account for at least 75% of all sales, unless there are many smaller divisions and separate reporting would create less clarity in reporting.
C) If there are more than 10 reportable segments, the company should consider additional aggregation of their segments.
D) Reported segments must account for 100% of the external sales, but only 75% of external and inter-segment sales.
Answer: C
Objective: LO3
Difficulty: Easy
18) Sandpiper Corporation paid $120,000 for annual property taxes on January 15, 2011, and $20,000 for building repair costs on March 10, 2011. Total repair expenses for the year were estimated to be $200,000, and are normally accrued during the year until incurred. What total amount of expense for these items was reported in Sandpiper's first quarter 2011 interim income statement?
A) $ 50,000
B) $ 80,000
C) $100,000
D) $140,000
Answer: B
Objective: LO8
Difficulty: Moderate
19) The estimated taxable income for Shebill Corporation on January 1, 2011, was $80,000, $100,000, $100,000, and $120,000, respectively, for each of the four quarters of 2011. Shebill's estimated annual effective tax rate was 30%. During the second quarter of 2011, the estimated annual effective tax rate was increased to 34%. Given only this information, Shebill's second quarter income tax expense was
A) $30,000.
B) $34,000.
C) $37,200.
D) $61,200.
Answer: C
Objective: LO8
Difficulty: Moderate
20) On January 5, 2011, Eagle Corporation paid $50,000 in real estate taxes for the calendar year. In March of 2011, Eagle paid $180,000 for an annual machinery overhaul and $10,000 for the annual CPA audit fee. What amount was expensed for these items on Eagle's quarterly interim financial statements?
Answer: D
Objective: LO8
Difficulty: Moderate
Exercises
1) The accountant for Baxter Corporation has assigned most of the company's assets to its three segments as follows:
Electronics $1,760,000
Hardware 3,420,000
Plumbing 490,000
Total $5,670,000
The unassigned assets consist of $430,000 of unallocated goodwill and $270,000 of assets attached to the corporate headquarters. For internal decision-making purposes, goodwill is not assigned to the segments and the assets assigned to the corporate headquarters are allocated equally to the operating segments.
Required:
1. What is the proper threshold value to use in determining which of the operating segments shown above are reporting segments?
2. Which of the operating segments are considered reporting segments?
Answer:
Requirement 1
GAAP allows the assets of the corporate headquarters to be included in the segments if the assets are included in the measure of the segment's assets that are reviewed by the chief operating decision maker. This interpretation would justify the exclusion of goodwill and inclusion of the corporate headquarters assets. The threshold value would be 10% times the sum of ($5,670,000 + $270,000) or $594,000.
Requirement 2
Using the criterion established in Requirement 1, Electronics and Hardware would both be considered reporting segments. Plumbing would not be a reporting segment because it falls below the $594,000 threshold value. ($490,000 + $270,000/3 = $580,000).
Objective: LO2
Difficulty: Moderate
identified as follows:
Revenues Operating
(includes Profit Identifiable
Operating Segment intersegment or Loss Assets
revenues)
Appliances $1,100,000 $(150,000) $1,200,000
Clothing 1,300,000 (750,000) 400,000
Lawn and Garden 850,000 150,000 150,000
Auto Accessories 1,000,000 100,000 200,000
Service Contracts 650,000 (50,000) 100,000
Catalog Sales 2,300,000 50,000 500,000
Home Furnishings 2,800,000 250,000 1,000,000
Tools 2,400,000 300,000 250,000
$12,400,000 $(100,000) $3,800,000
Revenues of the segments are external, with the exception of tools, which sold $400,000 to other segments, and Appliances, which sold $200,000 to other segments.
Required:
1. In applying the "revenue" test to identify reporting segments, what is the test value for Dashwood Corporation?
2. Using the "revenue" test, which of Dashwood's operating segments will also be reportable segments?
Answer:
Requirement 1
In the revenue test, there is no separation of revenue earned from sales to other segments, thus the test value to be used is 10% of the total revenues listed, or $12,400,000 × 10% = $1,240,000.
Requirement 2
Reportable segments are Clothing, Catalog Sales, Home Furnishings and Tools. The revenue from these four segments does not exceed 75% of consolidated revenue of $11,800,000, which equals $8,850,000. As a result, another operating segment, Appliances, must be reportable.
Objective: LO2
Difficulty: Moderate
identified as follows:
Operating
Profit Identifiable
Operating Segment Revenues or Loss Assets
Appliances $110,000 $(15,000) $120,000
Clothing 130,000 (75,000) 40,000
Lawn and Garden 85,000 15,000 15,000
Auto Accessories 100,000 10,000 20,000
Service Contracts 65,000 (5,000) 10,000
Catalog Sales 230,000 5,000 50,000
Home Furnishings 280,000 25,000 100,000
Tools 240,000 30,000 25,000
$1,240,000 (10,000) $380,000
Required:
1. In applying the "operating profit or loss" test to identify reporting segments, what is the test value for Calam Corporation?
2. Using the "reported profit or loss" test, which of Calam's operating segments will also be reporting segments?
Answer:
Requirement 1
If the absolute value of the total segments showing operating losses, $95,000, is more than the absolute value of the profitable segments, $85,000, then the absolute value of the loss segments, when multiplied by 10%, would become the test value for each segment. The $95,000 is multiplied by 10% to get $9,500, which is the test value for both the profitable and loss segments.
Requirement 2
Using the test value of $9,500 for profit and loss of the segments, only the Service Contracts and Catalog Sales segments would not be considered reportable segments.
Objective: LO2
Difficulty: Moderate
identified as follows:
Operating
Profit Identifiable
Operating Segment Revenues or Loss Assets
Appliances $110,000 $(15,000) $120,000
Lawn and Garden 85,000 15,000 15,000
Auto Accessories 100,000 10,000 20,000
Service Contracts 65,000 (5,000) 10,000
Catalog Sales 230,000 5,000 50,000
Corporate ________ ________ 25,000
$590,000 $10,000 $240,000
Corporate assets are typically allocated back evenly to the segments for internal analysis purposes.
Required:
1. In applying the "asset" test to identify reporting segments, what is the test value for Elom Corporation?
2. Using the "asset" test, which of Elom's operating segments will also be reporting segments? Answer:
Requirement 1
Total identifiable assets of $240,000 is multiplied by 10% to determine the test value of $24,000.
Requirement 2
Based on the answer to Requirement 1, Appliances, Auto Accessories and Catalog Sales would be reporting segments because their identifiable segment assets (which would include an additional $5,000, or 1/5 of $25,000 corporate assets), meets or exceeds the test value of $24,000. Note that Corporate is not a reportable segment, but that the assets are allocated to the other divisions. Objective: LO2
Difficulty: Moderate
5) The following data relate to Falcon Corporation's industry segments:
Sales to
External Intersegment
Industry Segment Customers Sales Assets
Oil Exploration $80,000 $$310,000
Refinery 240,000 720,000
Plastics 20,000 $20,000 120,000
Chemicals 220,000 160,000 980,000
Solar Power 20,000 75,000 270,000
Totals $580,000 $255,000 $$2,400,000
Required:
1. Which of Falcon's operating segments would be considered reporting segments under the "revenue" test?
2. Which of Falcon's operating segments would be considered reporting segments under the "asset" test?
Answer:
Requirement 1
The test value is 10% of the combined revenues of all operating segments including intersegment revenues, or, 10% × $835,000 or $83,500. Based on this test value, Refinery, Chemicals, and Solar Power would be the reporting segments because each of these segments has more than $83,500 in total sales.
Requirement 2
The test value is 10% of the combined identifiable assets or 10% × $2,400,000 or $240,000. Based on this test value, Oil Exploration, Refinery, Chemicals, and Solar Power would be the reporting segments because each of these segments has more than $240,000 in segment assets.
Objective: LO2
Difficulty: Moderate
geographical area. For 2011, the total revenues of each segment are provided below. There are no intersegment revenues.
Total
Revenues
Canada $22,000,000
United States 76,000,000
Mexico 10,000,000
South America 9,000,000
China 2,000,000
Russia 1,500,000
Australia 3,000,000
European Union 12,000,000
Other European 14,000,000
Total revenues $149,500,000
Required:
1. Which operating segments will be considered reporting segments based on the revenue test?
2. What is the test value for determining whether a sufficient number of segments are reported?
3. What will be the minimum number of segments that must be reported?
Answer:
Requirement 1
The reporting segments will be those segments whose segment revenue is 10% or more of the combined revenues of all operating segments. The total combined revenue of the operating segments is $149,500,000 and 10% of that number is $14,950,000. Only Canada and the United States will satisfy the 10% revenue test.
Requirement 2
The appropriate test value is the "75% of consolidated revenues" test which is $112,125,000 ($149,500,000 × 75%).
Requirement 3
Canada and the United States have combined revenues that total $98,000,000. The next largest segment in revenues is Other European at $14,000,000 which would get the total revenues to $112,000,000. Falcon would have to report one additional segment, European Union, to meet the 75% test for revenue. Objective: LO2, 3
Difficulty: Moderate
geographical area. For 2011, the total revenues of each segment are provided below. There are no intersegment revenues.
Total
Revenues
Canada $980,000
United States 1,410,000
Mexico 1,260,000
South America 430,000
China 710,000
Russia 660,000
Australia 370,000
European Union 1,220,000
Other European 1,650,000
Total revenues $8,690,000
Required:
1. Which operating segments will be considered reporting segments based on the revenue test?
2. What is the test value for determining whether a sufficient number of segments are reported?
3. What will be the minimum number of segments that must be reported?
Answer:
Requirement 1
The reporting segments will be those segments whose segment revenue is 10% or more of the combined revenues of all operating segments, or $869,000 ($8,690,000 × 10%). Canada, United States, Mexico, European Union and Other European will satisfy the 10% revenue test.
Requirement 2
The appropriate test value is the "75% of consolidated revenues" test which is $6,517,500 ($8,690,000 × 75%).
Requirement 3
The five segments identified under Requirement 1 total $6,520,000 and therefore just meet the amount required by the 75% test. No further segments will need to be reported.
Objective: LO2, 3
Difficulty: Moderate
8) The following data relate to Elle Corporation's industry segments. (Elle HQ represents the corporate headquarters). All other segments are geographical sales segments.
Attribute Europe Russia China Japan Elle HQ
External sales $35,000 $24,000 $33,000 $0 $0
Intersegment
Sales 2,000 1,000 4,000 0 0
Expenses 27,000 18,000 29,000 5,000 12,000
Assets assigned 20,000 22,000 30,000 14,000 15,000
Income from
Equity investee 5,000
Required:
1. Prepare a report which reconciles the reportable segment profits to total consolidated profits assuming that corporate expenses are not allocated to the operating segments.
2. Prepare a report which reconciles the reportable segment profits to total consolidated profits assuming that corporate expenses are allocated evenly among the operating segments.
Answer:
Requirement 1
Total profit or loss for reportable segments
Europe:($35,000 + $2,000 - $27,000) =$10,000
Russia:($24,000 + $1,000 - $18,000) =7,000
China:($33,000 + $4,000 - $29,000) =8,000
Japan: (-$5,000) (5,000)
Total operating profit from reportable segments $20,000
Plus: Income from equity investee 5,000
Less: Intersegment revenues (7,000)
Less: Headquarter's expenses (12,000)
Equals: Consolidated net income $ 6,000
Requirement 2
Total profit or loss for reportable segments
Europe:($35,000 + $2,000 - $27,000 - $3,000) +
Russia:($24,000 + $1,000 - $18,000 - $3,000) +
China:($33,000 + $4,000 - $29,000 - $3,000) +
Japan: (-$5,000-$3,000) =
Operating profit from reportable segments $8,000
Plus: Income from equity investee 5,000
Less: Intersegment revenues (7,000)
Equals: Consolidated net income $6,000
Objective: LO5
Difficulty: Moderate
9) Illiana Corporation has several accounting issues with respect to its interim financial statements for the first quarter of calendar 2011.
Required:
For each of the independent situations given below, state whether or not the method proposed by Illiana is acceptable. Justify each answer with appropriate reasoning.
1. Illiana will not perform a physical inventory at the end of the calendar quarter. It intends to estimate the cost of sales by using the gross profit inventory method.
2. Illiana grants volume discounts to its customers based upon their total annual purchases. The discounts are calculated on a sliding scale ranging from 1% to 8%. The amount of discount applied will progressively increase for a customer as the cumulative purchase total for the customer increases during the year. Illiana will use the average rate of discounts earned for each customer in the prior year as the expected discount rate for the current year.
3. At the beginning of the current quarter, Illiana incurred a large loss on the sale of some of its marketable securities. It intends to distribute the loss evenly to each of the four calendar quarters.
4. Illiana incurs maintenance costs during its year-end holiday shut down, but has minimal maintenance costs during the rest of the year. It intends to deduct one-fourth of the yearly estimated cost on its interim income statement.
Answer:
1. GAAP specifically permits the use of the gross profit method for estimating ending inventory and cost of sales in the preparation of interim financial statements.
2. GAAP permits the use of reasonable estimates based upon the experience of prior periods for allocating annual expenses to interim periods. This integral approach is permitted but not required.
3. Since the entire loss has been realized in the first quarter, Illiana has no justifiable basis for allocating the loss to the other quarters. GAAP requires the discrete approach for a permanent loss in value; if the loss could not be deferred at year end to another period, then it may not be deferred to another interim period. It must show the entire loss in the first quarter.
4. GAAP permits the allocation of annual costs to the interim periods to which they relate. Objective: LO7
Difficulty: Moderate
calendar 2011. The following information was provided for the preparation of the statements:
1. Credit sales for the quarter $1,700,000
2. Cash sales for the quarter 800,000
3. Inventories, July 1 (FIFO cost method) 250,000
4. Cash purchases of inventory during the quarter 400,000
5. Inventory purchases made on account for the quarter 650,000
6. Estimated cost of goods sold ratio 45%
7. Selling and general administrative expenses paid 111,000
8. Effective corporate tax rate 28%
9. Loss on sale of securities sold on June 30, 2011 75,000
10. Annual insurance premiums paid on August 1(the 84,000
anniversary date of the policy) (Last year's insurance expense is
included in general administrative expenses.)
Additional information:
At the end of the year, Jeale accrues its annual pension and depreciation expenses which amount to $60,000 and $42,000, respectively.
Required:
Prepare Jeale's interim income statement for the third quarter of calendar 2011.
Answer:
Jeale Corporation
Interim Income Statement
For the Calendar Quarter Ending on September 30, 2011
Sales Revenue ($1,700,000 + $800,000) $2,500,000
Less:
Cost of Goods Sold (2,500,000 × 45%)1,125,000
Selling and general and administrative expenses paid 111,000
Insurance expense ($84,000/12 months × 2 months)14,000
Depreciation expense ($42,000/4) 10,500
Estimated pension expense ($60,000/4) 15,000
Income before taxes $1,224,500
Income tax expense ($1,224,500 × 28%) 342,860
Net income $ 881,640
Objective: LO7, 8
Difficulty: Moderate
calendar 2011.
The following trial balance information is available for third quarter:
Account Debit Credit
Cash $98,000
Accounts Receivable 285,000
Inventory 750,000
Fixed assets 600,000
Accounts Payable $300,000
Common Stock 50,000
Retained Earnings 80,000
Sales 4,400,000
Administrative expense 312,000
Cost of goods sold 2,650,000
Loss on sale of securities sold on July 30 75,000
Annual equipment overhaul costs paid on August 1 60,000
Totals $4,830,000 $4,830,000
Additional information:
At the end of the year, Krull distributes annual employee bonuses and charitable donations that are estimated at $40,000, and $12,000, respectively. The cost of goods sold includes the liquidation of a $45,000 base layer in inventory that Krull will restore in the fourth quarter at a cost of $75,000. Effective corporate tax rate for 2011 is 32%.
Required:
Prepare Krull's interim income statement for the third quarter of calendar 2011.
Answer:
Krull Corporation
Interim Income Statement
For the Calendar Quarter Ending on September 30, 2011
Sales Revenue $4,400,000
Less:
Cost of Goods Sold ($2,650,000 + $30,000 LIFO base replacement) 2,680,000
Administrative expenses 312,000
Loss on sale of securities 75,000
Bonus expense ($40,000/4) 10,000
Charitable contribution expense ($12,000/4) 3,000
Maintenance expense ($60,000/4) 15,000
Income before taxes $1,305,000
Income tax expense ($1,305,000 × 32%) 417,600
Net income $887,400
Objective: LO7, 8
Difficulty: Moderate
1st 2nd3rd 4th2011
Quarter Quarter Quarter Quarter Total Est. Income $30,000 $40,000 $40,000 $50,000 $160,000
Income tax rates applicable to Leotronix:
From: $ 0 to $50,000 15%
From: $50,001 to $75,000 25%
Over: $75,000 35%
Required:
Determine Leotronix's estimated effective tax rate.
Answer:
Income tax on estimated income
First quarter ($30,000 × 15%)$4,500
Second quarter ($20,000 × 15%) + ($20,000 × 25%)8,000
Third quarter ($5,000 × 25%) + ($35,000 × 35%)13,500
Fourth quarter ($50,000 × 35%) 17,500
Total estimated taxes $ 43,500
Effective tax rate = Total estimated taxes divided
by total estimated income = $43,500/$160,000 = %
Objective: LO8
Difficulty: Moderate。