Chapter 13 - Segment and Interim Reporting

Chapter 13
Segment and Interim Reporting

Multiple Choice Questions

Wakefield Company uses a perpetual inventory system. In August, it sold ,!!! units from its
"I#$-%ase inventory, &hi'h had originally 'ost (3) per unit. *he repla'ement 'ost is
e+pe'ted to %e (,) per unit. *he 'ompany is planning to redu'e its inventory and e+pe'ts to
repla'e only 1,)!! of these units %y -e'em%er 31, the end of its fis'al year. *he 'ompany
repla'ed 1,)!! units in .ovem%er at an a'tual 'ost of ()! per unit.

1. /ased on the pre'eding information, in the entry in August to re'ord the sale of the ,!!!
units0
A. Cost of 1oods Sold &ill %e de%ited for (2!,!!!.
/. Inventory &ill %e 'redited for (3),!!!.
C. 4+'ess of Repla'ement Cost over "I#$ Cost of Inventory "i5uidation &ill %e 'redited for
(1),!!!.
-. 4+'ess of Repla'ement Cost over "I#$ Cost of Inventory "i5uidation &ill %e 'redited for
(62,!!!.

. /ased on the pre'eding information, in the entry to re'ord the repla'ement of the 1,)!!
units in .ovem%er, Cost of 1oods Sold &ill %e de%ited for0
A. (),)!!.
/. (,)!!.
C. (1),!!!.
-. (2,)!!.

3. /ased on the pre'eding information, in the entry to re'ord the repla'ement of the 1,)!!
units in .ovem%er, Inventory &ill %e de%ited for0
A. (),)!!.
/. (2),!!!.
C. (62,)!!.
-. (6!,!!!.

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Chapter 13 - Segment and Interim Reporting
,. /ased on the pre'eding information, in the entry to re'ord the repla'ement of the 1,)!!
units in .ovem%er, A''ounts 7aya%le &ill %e 'redited for0
A. (62,)!!.
/. (2),!!!.
C. (6,)!!.
-. (6!,!!!.

). Assume that the repla'ement did not happen in .ovem%er. In -e'em%er, the 'ompany
de'ided not to repla'e any of the 1,)!! units. *he entry re5uired on -e'em%er 31 to eliminate
valuation a''ounts related to the inventory that &ill not %e repla'ed &ill in'lude0
A. a de%it to 4+'ess of Repla'ement Cost over "I#$ Cost of Inventory "i5uidation for
(,)!!.
/. a 'redit to Cost of 1oods Sold for (1),!!!.
C. a de%it to Inventory for (2!,!!!.
-. a de%it to Inventory for (1),!!!.

6. William Corporation, &hi'h has a fis'al year ending 8anuary 31, had the follo&ing preta+
a''ounting in'ome and estimated effe'tive annual in'ome ta+ rates for the first three 5uarters
of the year ended 8anuary 31, !!30

William9s in'ome ta+ e+penses in its interim in'ome statement for the third 5uarter are0
A. (36,!!!.
/. (23,)!!.
C. (,6,)!!.
-. (1!,!!!.

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Chapter 13 - Segment and Interim Reporting
2. $n 8une 3!, !!3, String Corporation in'urred a (!,!!! net loss from disposal of a
%usiness 'omponent. Also, on 8une 3!, !!3, String paid (6!,!!! for property ta+es assessed
for the 'alendar year !!3. What amount of the pre'eding items should %e in'luded in the
determination of String9s net in'ome or loss for the si+-month interim period ended 8une 3!,
!!3:
A. ()!,!!!
/. (!,!!!
C. (1,!,!!!
-. (3!,!!!

3. *revor Company dis'loses supplementary operating segment information for its three
reporta%le segments. -ata for !!3 are availa%le as follo&s0

Additional !!3 e+penses in'lude indire't operating e+penses of (!!,!!!. Appropriately
sele'ted 'ommon indire't operating e+penses are allo'ated to segments %ased on the ratio of
ea'h segment9s sales to total sales. *he !!3 operating profit for Segment / &as0
A. (13!,!!!
/. (1!,!!!
C. (1)!,!!!
-. ()!,!!!

;. *revor Company dis'loses supplementary operating segment information for its three
reporta%le segments. -ata for !!3 are availa%le as follo&s0

Allo'a%le 'osts for the year &as (13!,!!!. Allo'a%le 'osts are assigned %ased on the ratio of a
segment9s in'ome %efore allo'a%le 'osts to total in'ome %efore allo'a%le 'osts. *he !!3
operating profit for Segment / &as0
A. (11!,!!!
/. (13!,!!!
C. (16,!!!
-. (1!,!!!

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Chapter 13 - Segment and Interim Reporting
1!. *rimester Corporation9s revenue for the year ended -e'em%er 31, !!3, &as as follo&s0

*rimester has a reporta%le operating segment if that segment9s revenue e+'eeds0
A. (6),)!!
/. (6!,!!!
C. (6,,)!!
-. (61,!!!

11. -uring the third 5uarter of !!3, 7ride Company sold a pie'e of e5uipment at an (3,!!!
gain. What portion of the gain should 7ride report in its in'ome statement for the third
5uarter of !!3:
A. (!
/. (,!!!
C. (,,!!!
-. (3,!!!

1. $n <ar'h 1), !!;, Clarion Company paid property ta+es of (6!,!!! on its fa'tory
%uilding for 'alendar year !!;. $n 8uly 1, !!;, Clarion made (,!,!!! in unanti'ipated
repairs to its ma'hinery. *he repairs &ill %enefit operations for the remainder of the 'alendar
year. What total amount of these e+penses should %e in'luded in Clarion9s 5uarterly in'ome
statement for the three months ended Septem%er 3!, !!;:
A. ()),!!!
/. (1),!!!
C. (3),!!!
-. (,!,!!!

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Chapter 13 - Segment and Interim Reporting
#orge Company, a 'alendar-year entity, had 6,!!! units in its %eginning inventory for !!3.
$n -e'em%er 31, !!2, the units had %een ad=usted do&n to (,2! per unit from an a'tual 'ost
of ()1! per unit. It &as the lo&er of 'ost or market. .o additional units &ere pur'hased
during !!3. *he follo&ing additional information is provided for !!30

#orge does not have suffi'ient e+perien'e &ith the seasonal market for its inventory units and
assumes that any redu'tions in market value during the year &ill %e permanent.

13. /ased on the pre'eding information, the 'ost of goods sold for the first 5uarter is0
A. (636,!!!
/. ()6,,!!!
C. (),6,!!!
-. (6,,!!!

1,. /ased on the pre'eding information, the 'ost of goods sold for the se'ond 5uarter is0
A. (,16,!!!
/. (36,,!!!
C. (3!,,!!!
-. (,,,!!!

1). /ased on the pre'eding information, the 'ost of goods sold for the year !!3, is0
A. (,!3!,!!!
/. (1,33!,!!!
C. (1,33),!!!
-. (1,;1!,!!!

13-)
Chapter 13 - Segment and Interim Reporting
16. Samuel Corporation foresees a do&nturn in its %usiness in the medium term. It e+pe'ts to
sustain an operating loss of (16!,!!! for the full year ending -e'em%er 31, !!3. Samuel9s
ta+ rate is 3) per'ent. Anti'ipated ta+ 'redits for !!3 total (3,!!!. .o permanent differen'es
are e+pe'ted. Reali>ation of the full ta+ %enefit of the e+pe'ted operating loss and reali>ation
of anti'ipated ta+ 'redits are assured %eyond any reasona%le dou%t %e'ause they &ill %e
'arried %a'k. #or the first 5uarter ended <ar'h 31, !!3, Samuel reported an operating loss of
(3!,!!!. ?o& mu'h of a ta+ %enefit should Samuel report for the interim period ended <ar'h
31, !!3:
A. (3,!!!
/. (1,!!!
C. (13,)!!
-. (1),)!!

12. #ive of eight internally reported operating segments of Rollins Company 5ualify under the
standards set %y #AS/ 131 for segment reporting. ?o&ever, the five identified segments do
not meet the 2) per'ent revenue test. #AS/ 131 pres'ri%es that management0
A. su%divide segments until there are at least 1! reporta%le segments.
/. 'onsolidate the remaining operating segments and in'lude them under an @all other@
'ategory.
C. sele't additional operating segments until the 2)A threshold is met.
-. in'lude the heading @'orporate head5uarters@ as an operating segment.

13. -er%y Company pays its e+e'utives a %onus of 6 per'ent of in'ome %efore dedu'ting the
%onus and in'ome ta+es. #or the 5uarter ended <ar'h 31, !!3, -er%y had in'ome %efore the
%onus and in'ome ta+ of (1,!!!,!!!. #or the year ended -e'em%er 31, !!3, -er%y
estimates that its in'ome %efore %onus and in'ome ta+es &ill %e (2!,!!!,!!!. #or the 5uarter
ended <ar'h 31, !!3, &hat is the amount of the %onus that -er%y should dedu't on its
in'ome statement:
A. (,,!!,!!!
/. (2!,!!!
C. (1,!)!,!!!
-. (13!,!!!

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Chapter 13 - Segment and Interim Reporting
1;. In !!6 and !!2, ea'h of 7utney Company9s four operating segments met one of the
three 5uantitative tests for segment reporting. In !!3, Segment / failed to 5ualify under the
pres'ri%ed tests %e'ause of a%normal finan'ial 'onditions. *he other three segments 5ualified
for reporting. #or !!3, Segment /0
A. should %e e+'luded from segment dis'losure %ut referred to in the management letter to
shareholders.
/. should %e distin'tly separated from the other three segments and listed as a @non5ualifying@
segment.
C. should %e 'om%ined &ith one of the other three segments and reported.
-. should %e in'luded in the segment dis'losures at the dis'retion of management.

!. Collins Company reported 'onsolidated revenue of (1!,!!!,!!! in !!3. Collins
operates in t&o geographi' areas, domesti' and Asia. *he follo&ing information pertains to
these t&o areas0

What 'al'ulation %elo& is 'orre't to determine if the revenue test is satisfied for the Asian
operations:
A. ()3,!!!,!!!B(1,!,!!!,!!!
/. ()!,!!!,!!!B(1!,!!!,!!!
C. ()3,!!!,!!!B(1!,!!!,!!!
-. ()!,!!!,!!!B(1,!,!!!,!!!

An analysis of A%%ey Company9s operating segments provides the follo&ing information0


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Chapter 13 - Segment and Interim Reporting
1. Refer to the a%ove information. Whi'h of the operating segments a%ove meet the revenue
test:
A. /, -, and 4
/. A and -
C. A, /, and -
-. /, C, -, and 4

. Refer to the a%ove information. Whi'h of the operating segments a%ove meet the
operating profit ClossD test:
A. / and 4
/. A and /
C. A, /, and 4
-. A, /, C, and 4

3. Refer to the a%ove information. Whi'h of the operating segments a%ove are reporta%le
segments:
A. /, C, and -
/. A, /, -, and 4
C. /, -, and 4
-. A, /, C, -, and 4

,. Crisfield Company has t&o reporta%le segments, C and -. Segment C made (,,!!!,!!! of
sales to e+ternal 'ustomers and (,!!,!!! of sales to other operating segments. Segment -, on
the other hand, made sales of (3,!!!,!!! to e+ternal 'ustomers and (1,6!!,!!! of sales to
other operating segments. Crisfield Company reported (13,!!,!!! of revenues on its
'onsolidated in'ome statement. What 'al'ulation %elo& 'orre'tly determines &hether
Crisfield Company9s reporta%le segments satisfy the 2)A revenue test:
A. (1,,!!!,!!!B(1),!!,!!!
/. (1,,!!!,!!!B(13,!!,!!!
C. (1,!!!,!!!B(13,!!,!!!
-. (1,!!!,!!!B(1),!!,!!!

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Chapter 13 - Segment and Interim Reporting
). Eeus Corporation has determined that it has 1) reporta%le operating segments. In order to
'omply &ith the standard for segment dis'losures, Eeus Corporation should do &hi'h of the
follo&ing:
A. Report 1! reporta%le segments and dis'lose the remaining ) segments as other operating
segments.
/. Report 1! reporta%le segments %y 'om%ining the most 'losely related segments.
C. Report 1) reporta%le segments as long as the 2) per'ent revenue test has %een satisfied.
-. Report 1 reporta%le segments and sho& all other operating segments in a 'olumn la%eled
@$ther $perating Segments.@

6. #AS/ 131 re5uires 'ertain dis'losures a%out ma=or 'ustomers. All of the follo&ing
statements a%out those dis'losures are true &ith the e+'eption of &hi'h statement:
A. *he identity of the segment reporting the revenue from a signifi'ant 'ustomer must %e
dis'losed a footnote.
/. *he amount of revenue from a signifi'ant 'ustomer must %e dis'losed in a footnote.
C. #or applying the dis'losure test a threshold of 1! per'ent of total revenues is mandated.
-. A lo'al, state, or foreign government 'an %e 'onsidered a ma=or 'ustomer.

2. *he management approa'h to the definition of segments for finan'ial reporting e+pe'ts a
'ompany to0
I. Report disaggregated information on the same organi>ational %asis as used %y the
'ompany9s internal de'ision makers.
II. Report disaggregated information for at least ten segments.
A. I
/. II
C. /oth I and II
-. .either I nor II

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Chapter 13 - Segment and Interim Reporting
3. <ain <anufa'turing Corporation reported 'onsolidated revenues of ()!,!!!,!!! on its
in'ome statement for !!3. *he management of the 'orporation identified 3 industry
segments, <, ., and $. *hese segments had the follo&ing intersegment sales and transfers
during !!30

#or <ain <anufa'turing Corporation, the revenue test &ould %e satisfied if any of its industry
segments had revenue e5ual to or greater than &hi'h of the follo&ing:
A. (2,,!!,!!!
/. (),2,!,!!!
C. (),!!!,!!!
-. (,,6!,!!!

;. Stone Company reported (1!!,!!!,!!! of revenues on its !!3 in'ome statement. -uring
the year ended -e'em%er 31, !!3, Stone made sales of (3,!!!,!!! to e+ternal 'ustomers in
Western 4urope. In addition, Stone made sales of (1!,!!!,!!! to the F.S. government and
(,,!!!,!!! of sales to various state governments. In the footnotes to its finan'ial statements
for !!3, in reporting enterprise&ide dis'losures, Stone is re5uired to dis'lose0

A. $ption A
/. $ption /
C. $ption C
-. $ption -

13-1!
Chapter 13 - Segment and Interim Reporting
3!. *yler Company in'urred an inventory loss due to a de'line in market pri'es during its first
5uarter of operations in !!3. At the end of the first 5uarter, management of the 'ompany
%elieved the de'line in market pri'es to %e permanent. In the se'ond 5uarter, the market pri'es
of *yler9s inventories in'reased a%ove their a'5uisition 'ost. <arket pri'es remained higher
than a'5uisition 'ost during the remainder of !!3. ?o& should *yler report the fa'ts a%ove
on its first and se'ond 5uarter in'ome statements:

A. $ption A
/. $ption /
C. $ption C
-. $ption -

31. -enver Company, a 'alendar-year 'orporation, had the follo&ing a'tual in'ome %efore
in'ome ta+ e+pense and estimated effe'tive annual in'ome ta+ rates for the first three 5uarters
in !!30

-enver9s in'ome ta+ e+pense in its interim in'ome statement for the third 5uarter should %e0
A. (16,!!!.
/. (63,,!!.
C. (6,,!!.
-. (),,!!!.

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Chapter 13 - Segment and Interim Reporting
3. APB Opinion 28 uses &hi'h vie& of interim reporting:
A. Integral
/. -is'rete
C. Segmental
-. Comprehensive

33. Whi'h of the follo&ing o%servations is true of the dis'rete vie& of interim reporting:
A. An interim period is vie&ed as an installment of an annual period.
/. Re'ognition and ad=ustment of 'ertain in'ome or e+pense items may %e affe'ted %y
=udgments a%out the e+pe'ted results of the entire year9s operations.
C. 4a'h interim period is 'onsidered as a %asi' a''ounting period to %e evaluated as if it &ere
an annual a''ounting period.
-. $ne interim period &ould not %ear the entire e+pense that %enefits more than one interim
period.

3,. <ason Company paid its annual property ta+es of (,!,!!! on #e%ruary 1), !!;. <ason
also anti'ipates that its annual repairs e+pense for !!; &ill %e (1,!!,!!!. *his amount is
usually in'urred and paid in 8uly and August &hen operations are shut do&n so that
ma'hinery and e5uipment 'an %e repaired. What amount should <ason dedu't for property
ta+es and repairs in ea'h 5uarter for !!;:

A. $ption A
/. $ption /
C. $ption C
-. $ption -

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Chapter 13 - Segment and Interim Reporting
3). *oledo Imports, a 'alendar-year 'orporation, had the follo&ing in'ome %efore ta+ e+pense
and estimated effe'tive annual in'ome ta+ rates for the first three 5uarters in !!30

*oledo9s in'ome ta+ e+pense in its interim in'ome statement for the nine months ended
Septem%er 3! and for the third 5uarter, respe'tively, are0
A. ()!,3!! and (1!3,!!.
/. (),!!! and (1!3,!!!.
C. (),!!! and (1!3,!!.
-. ()!,3!! and (1!3,!!!.

36. 4stimated gross profit rates may %e used to estimate a 'ompany9s 'ost of goods sold and
its ending inventory for0
A. 5uarterly %ut not for annual finan'ial statements.
/. %oth 5uarterly and annual finan'ial statements.
C. neither 5uarterly nor annual finan'ial statements.
-. annual %ut not for 5uarterly finan'ial statements.

32. -avis Company uses "I#$ for all of its inventories. -uring its se'ond 5uarter of !!;,
-avis e+perien'ed a "I#$ li5uidation. -avis fully e+pe'ts to repla'e the li5uidated inventory
in the early part of the third 5uarter. ?o& should -avis report the inventory temporarily
li5uidated on its in'ome statement for the se'ond 5uarter:
A. Cost of goods sold for the se'ond 5uarter should in'lude the a'5uisition 'ost of the goods
temporarily li5uidated.
/. Cost of goods sold for the se'ond 5uarter should in'lude the e+pe'ted repla'ement 'ost of
the goods temporarily li5uidated.
C. Cost of goods sold for the se'ond 5uarter should not in'lude the e+pe'ted repla'ement 'ost
of the goods temporarily li5uidated.
-. Cost of goods sold for the se'ond 5uarter is not affe'ted %y the temporary li5uidation of
"I#$ inventory.

13-13
Chapter 13 - Segment and Interim Reporting
33. ?o& &ould a 'ompany report a 'hange in an a''ounting prin'iple made on the last day of
the third 5uarter:
A. Retrospe'tive appli'ation to all pre-'hange interim periods reported.
/. .o 'hange is re5uired.
C. Apply to 'urrent and prospe'tive interim periods only.
-. Apply to prospe'tive interim periods only.

3;. <issoula Corporation disposed of one of its segments in the se'ond 5uarter and in'urred a
gain from disposal of dis'ontinued segment of (6!!,!!!, net of ta+es. What is the effe't of
this gain from disposal of dis'ontinued segment:
A. In'rease net in'ome from operations for the year %y (6!!,!!!.
/. In'rease se'ond 5uarter net in'ome %y (6!!,!!!.
C. In'rease ea'h 5uarter9s net in'ome %y (1)!,!!!.
-. In'rease ea'h of the last three 5uarters9 net in'ome %y (!!,!!!.

,!. #rahm Company in'urred a first 5uarter operating loss %efore in'ome ta+ effe't of
(,,!!!,!!!. *his is a normal o''urren'e for #rahm %e'ause of seasonal flu'tuations.
4+perien'e has demonstrated the in'ome earned during the remaining 5uarters far e+'eeds the
first 5uarter losses ea'h year. #rahm estimates its annual in'ome ta+ rate &ill %e 3! per'ent.
What net loss should #rahm report for the first 5uarter:
A. (,,!!!,!!!
/. (,3!!,!!!
C. (2!!,!!!
-. (!

,1. *he in'ome ta+ e+pense appli'a%le to the se'ond 5uarter9s in'ome statement is determined
%y0
A. dividing the estimated annual in'ome ta+ e+pense %y four and allo'ating the amount to the
se'ond 5uarter.
/. multiplying the effe'tive in'ome ta+ rate times the in'ome %efore ta+ for the se'ond
5uarter.
C. su%tra'ting the in'ome ta+ e+pense appli'a%le to the first 5uarter from the in'ome ta+
e+pense appli'a%le to the first t&o 5uarters.
-. su%tra'ting the in'ome ta+ lia%ility appli'a%le to the first 5uarter from the in'ome ta+
lia%ility appli'a%le to the first t&o 5uarters.

13-1,
Chapter 13 - Segment and Interim Reporting
,. Whi'h of the follo&ing are esta%lished %y #AS/ 131 as @enterprise&ide dis'losure@
standards to provide more information a%out the risks to a 'ompany:
I. Information a%out dominant industry segments.
II. Information a%out ma=or 'ustomers.
III. Information a%out geographi' areas
A. /oth II and III
/. /oth I and III
C. /oth I and II
-. I, II, and II

,3. #AS/ 131 uses aCnD GGGGGG approa'h to the definition of segments.
A. line of %usiness
/. entity approa'h
C. portfolio
-. management


ssa! Questions

13-1)
Chapter 13 - Segment and Interim Reporting
,,. Iona Corporation is in the pro'ess of preparing its finan'ial statements for the first 5uarter
of !!; and has asked your advi'e as to ho& to report several items. *hese items in'lude the
follo&ing events &hi'h took pla'e during the first 5uarter of !!; Cassume all amounts are
materialD0
1D Iona redeemed %onds &ith a 'arrying value of (,,!!!,!!! at a 'ost of (3,26!,!!!. *his
early e+tinguishment o''urred %e'ause Iona &ants to issue ne& de%t at lo&er interest rates.
D Iona uses the "I#$ method for its inventories. $n 8anuary 1, !!;, inventories amounted
to (1!,!!!,!!!, &hile, on <ar'h 31, !!;, inventories totaled (;,!!,!!!. Iona e+pe'ts to
repla'e the li5uidated inventory at the %eginning of the se'ond 5uarter at a 'ost of (1,!!!,!!!.
3D Iona 'hanged its depre'iation method on (,,!!!,!!! of its delivery tru'ks from the
de'lining %alan'e method to the straight-line method. $n 8anuary 1, !!;, a''umulated
depre'iation under the de'lining %alan'e method &as (,3!!,!!!. ?ad the straight-line
method %een used, a''umulated depre'iation on 8anuary 1, !!;, &ould have %een
(,3!!,!!!. *he remaining life of the tru'ks is t&o years.
,D Iona pays its top e+e'utives a %onus at year-end of 6 per'ent of operating in'ome %efore
%onus and in'ome ta+es. $perating in'ome %efore %onus and in'ome ta+es for the three
months ended <ar'h 31, !!;, &as (1!,!!!,!!!. Iona estimates that its yearly operating
in'ome %efore %onus and in'ome ta+es &ill %e (6!,!!!,!!!.
)D Iona 'loses its manufa'turing operations in 8uly of ea'h year in order to make its ma=or
annual repairs. Iona estimates that the 'ost of these repairs in !!; &ill %e (1,!!!,!!!.
Re5uired0
#or ea'h of the events num%ered 1 through ), indi'ate ho& that event should %e reported on
Iona9s in'ome statement for the three months ended <ar'h 31, !!;, and the %alan'e sheet
a''ounts effe'ts at <ar'h 31, !!;. Ignore in'ome ta+es.




13-16
Chapter 13 - Segment and Interim Reporting
,). Ridge Company is in the pro'ess of determining its reporta%le segments for the year
ended -e'em%er 31, !!3. As the person responsi%le for determining this information, you
gather the follo&ing information0

Re5uired0
aD Fsing the appropriate tests, determine &hi'h of the industry segments listed a%ove are
reporta%le for !!3. Sho& your supporting 'omputations in good form.
%D Indi'ate &hether or not Ridge9s reporta%le segments satisfy the 2) per'ent test. Sho& your
supporting 'omputations in good form.




13-12
Chapter 13 - Segment and Interim Reporting
,6. "loyd Corporation reports the follo&ing information for !!3 for its three operating
segments0


Indire't operating e+penses are allo'ated to segments %ased upon the ratio of ea'h segment9s
tra'ea%le operating e+penses to total tra'ea%le operating e+penses. Interest e+pense is
allo'ated to segments %ased upon the ratio of ea'h segment9s sales to total sales.
Re5uired0
aD Cal'ulate the operating profit or loss for ea'h of the segments for !!3.
%D -etermine &hi'h segments are reporta%le, applying the operating profit or loss test.




13-13
Chapter 13 - Segment and Interim Reporting
,2. *he information %elo& is for the se'ond 5uarter of *ampa Company for !!30

Re5uired0
7repare an interim in'ome statement for the se'ond 5uarter for *ampa Company. Assume the
"I#$ li5uidation is e+pe'ted to %e restored %y the end of !!3.




13-1;
Chapter 13 - Segment and Interim Reporting
,3. #AS/ 131, -is'losure a%out Segments of an 4nterprise and Related Information, has
taken &hat has %een referred to as a @management approa'h@ to the definition of a segment
and the allo'ation of 'osts to a segment.
Re5uired0
aD What is meant %y a management approa'h: ?o& does this 'on'ept of a management
approa'h impa't the de'ision to dis'lose information:
%D ?o& are de'isions a%out 'ost allo'ation handled in segment dis'losures:




,;. #AS/ has spe'ified a @2)A per'ent 'onsolidated revenue test@.
Re5uired0
aD What is the 2)A test:
%D ?o& is the 2)A test impa'ted %y the @1!A Signifi'an'e Rule@:




)!. Interim in'ome statements are re5uired for Smith $r'hards. Smith does most of its sales in
the fall 5uarter of the year. *hese sales are %oth to individual and 'ommer'ial 'ustomers. ?o&
do you re'ommend Smith report sales during the spring 5uarter of the year:




13-!
Chapter 13 - Segment and Interim Reporting
Chapter 13 Segment and Interim Reporting Ans&er Hey


Multiple Choice Questions

Wakefield Company uses a perpetual inventory system. In August, it sold ,!!! units from its
"I#$-%ase inventory, &hi'h had originally 'ost (3) per unit. *he repla'ement 'ost is
e+pe'ted to %e (,) per unit. *he 'ompany is planning to redu'e its inventory and e+pe'ts to
repla'e only 1,)!! of these units %y -e'em%er 31, the end of its fis'al year. *he 'ompany
repla'ed 1,)!! units in .ovem%er at an a'tual 'ost of ()! per unit.

1. /ased on the pre'eding information, in the entry in August to re'ord the sale of the ,!!!
units0
A. Cost of 1oods Sold &ill %e de%ited for (2!,!!!.
/. Inventory &ill %e 'redited for (3),!!!.
C" 4+'ess of Repla'ement Cost over "I#$ Cost of Inventory "i5uidation &ill %e 'redited for
(1),!!!.
-. 4+'ess of Repla'ement Cost over "I#$ Cost of Inventory "i5uidation &ill %e 'redited for
(62,!!!.

AACSB: Analytic
AICPA: Measurement

. /ased on the pre'eding information, in the entry to re'ord the repla'ement of the 1,)!!
units in .ovem%er, Cost of 1oods Sold &ill %e de%ited for0
A. (),)!!.
/. (,)!!.
C. (1),!!!.
#" (2,)!!.

AACSB: Analytic
AICPA: Measurement

13-1
Chapter 13 - Segment and Interim Reporting
3. /ased on the pre'eding information, in the entry to re'ord the repla'ement of the 1,)!!
units in .ovem%er, Inventory &ill %e de%ited for0
A" (),)!!.
/. (2),!!!.
C. (62,)!!.
-. (6!,!!!.

AACSB: Analytic
AICPA: Measurement

,. /ased on the pre'eding information, in the entry to re'ord the repla'ement of the 1,)!!
units in .ovem%er, A''ounts 7aya%le &ill %e 'redited for0
A. (62,)!!.
B" (2),!!!.
C. (6,)!!.
-. (6!,!!!.

AACSB: Analytic
AICPA: Measurement

). Assume that the repla'ement did not happen in .ovem%er. In -e'em%er, the 'ompany
de'ided not to repla'e any of the 1,)!! units. *he entry re5uired on -e'em%er 31 to eliminate
valuation a''ounts related to the inventory that &ill not %e repla'ed &ill in'lude0
A. a de%it to 4+'ess of Repla'ement Cost over "I#$ Cost of Inventory "i5uidation for
(,)!!.
B" a 'redit to Cost of 1oods Sold for (1),!!!.
C. a de%it to Inventory for (2!,!!!.
-. a de%it to Inventory for (1),!!!.

AACSB: Analytic
AICPA: Measurement

13-
Chapter 13 - Segment and Interim Reporting
6. William Corporation, &hi'h has a fis'al year ending 8anuary 31, had the follo&ing preta+
a''ounting in'ome and estimated effe'tive annual in'ome ta+ rates for the first three 5uarters
of the year ended 8anuary 31, !!30

William9s in'ome ta+ e+penses in its interim in'ome statement for the third 5uarter are0
A. (36,!!!.
/. (23,)!!.
C" (,6,)!!.
-. (1!,!!!.

AACSB: Analytic
AICPA: Measurement

2. $n 8une 3!, !!3, String Corporation in'urred a (!,!!! net loss from disposal of a
%usiness 'omponent. Also, on 8une 3!, !!3, String paid (6!,!!! for property ta+es assessed
for the 'alendar year !!3. What amount of the pre'eding items should %e in'luded in the
determination of String9s net in'ome or loss for the si+-month interim period ended 8une 3!,
!!3:
A" ()!,!!!
/. (!,!!!
C. (1,!,!!!
-. (3!,!!!

AACSB: Analytic
AICPA: Measurement

13-3
Chapter 13 - Segment and Interim Reporting
3. *revor Company dis'loses supplementary operating segment information for its three
reporta%le segments. -ata for !!3 are availa%le as follo&s0

Additional !!3 e+penses in'lude indire't operating e+penses of (!!,!!!. Appropriately
sele'ted 'ommon indire't operating e+penses are allo'ated to segments %ased on the ratio of
ea'h segment9s sales to total sales. *he !!3 operating profit for Segment / &as0
A. (13!,!!!
B" (1!,!!!
C. (1)!,!!!
-. ()!,!!!

AACSB: Analytic
AICPA: Measurement

;. *revor Company dis'loses supplementary operating segment information for its three
reporta%le segments. -ata for !!3 are availa%le as follo&s0

Allo'a%le 'osts for the year &as (13!,!!!. Allo'a%le 'osts are assigned %ased on the ratio of a
segment9s in'ome %efore allo'a%le 'osts to total in'ome %efore allo'a%le 'osts. *he !!3
operating profit for Segment / &as0
A. (11!,!!!
/. (13!,!!!
C. (16,!!!
#" (1!,!!!

AACSB: Analytic
AICPA: Measurement

13-,
Chapter 13 - Segment and Interim Reporting
1!. *rimester Corporation9s revenue for the year ended -e'em%er 31, !!3, &as as follo&s0

*rimester has a reporta%le operating segment if that segment9s revenue e+'eeds0
A" (6),)!!
/. (6!,!!!
C. (6,,)!!
-. (61,!!!

AACSB: Analytic
AICPA: Measurement

11. -uring the third 5uarter of !!3, 7ride Company sold a pie'e of e5uipment at an (3,!!!
gain. What portion of the gain should 7ride report in its in'ome statement for the third
5uarter of !!3:
A. (!
/. (,!!!
C. (,,!!!
#" (3,!!!

AACSB: Analytic
AICPA: Measurement

1. $n <ar'h 1), !!;, Clarion Company paid property ta+es of (6!,!!! on its fa'tory
%uilding for 'alendar year !!;. $n 8uly 1, !!;, Clarion made (,!,!!! in unanti'ipated
repairs to its ma'hinery. *he repairs &ill %enefit operations for the remainder of the 'alendar
year. What total amount of these e+penses should %e in'luded in Clarion9s 5uarterly in'ome
statement for the three months ended Septem%er 3!, !!;:
A. ()),!!!
/. (1),!!!
C" (3),!!!
-. (,!,!!!

AACSB: Analytic
AICPA: Measurement

13-)
Chapter 13 - Segment and Interim Reporting
#orge Company, a 'alendar-year entity, had 6,!!! units in its %eginning inventory for !!3.
$n -e'em%er 31, !!2, the units had %een ad=usted do&n to (,2! per unit from an a'tual 'ost
of ()1! per unit. It &as the lo&er of 'ost or market. .o additional units &ere pur'hased
during !!3. *he follo&ing additional information is provided for !!30

#orge does not have suffi'ient e+perien'e &ith the seasonal market for its inventory units and
assumes that any redu'tions in market value during the year &ill %e permanent.

13. /ased on the pre'eding information, the 'ost of goods sold for the first 5uarter is0
A" (636,!!!
/. ()6,,!!!
C. (),6,!!!
-. (6,,!!!

AACSB: Analytic
AICPA: Measurement

1,. /ased on the pre'eding information, the 'ost of goods sold for the se'ond 5uarter is0
A. (,16,!!!
/. (36,,!!!
C" (3!,,!!!
-. (,,,!!!

AACSB: Analytic
AICPA: Measurement

13-6
Chapter 13 - Segment and Interim Reporting
1). /ased on the pre'eding information, the 'ost of goods sold for the year !!3, is0
A. (,!3!,!!!
/. (1,33!,!!!
C. (1,33),!!!
#" (1,;1!,!!!

AACSB: Analytic
AICPA: Measurement

16. Samuel Corporation foresees a do&nturn in its %usiness in the medium term. It e+pe'ts to
sustain an operating loss of (16!,!!! for the full year ending -e'em%er 31, !!3. Samuel9s
ta+ rate is 3) per'ent. Anti'ipated ta+ 'redits for !!3 total (3,!!!. .o permanent differen'es
are e+pe'ted. Reali>ation of the full ta+ %enefit of the e+pe'ted operating loss and reali>ation
of anti'ipated ta+ 'redits are assured %eyond any reasona%le dou%t %e'ause they &ill %e
'arried %a'k. #or the first 5uarter ended <ar'h 31, !!3, Samuel reported an operating loss of
(3!,!!!. ?o& mu'h of a ta+ %enefit should Samuel report for the interim period ended <ar'h
31, !!3:
A. (3,!!!
B" (1,!!!
C. (13,)!!
-. (1),)!!

AACSB: Analytic
AICPA: Measurement

12. #ive of eight internally reported operating segments of Rollins Company 5ualify under the
standards set %y #AS/ 131 for segment reporting. ?o&ever, the five identified segments do
not meet the 2) per'ent revenue test. #AS/ 131 pres'ri%es that management0
A. su%divide segments until there are at least 1! reporta%le segments.
/. 'onsolidate the remaining operating segments and in'lude them under an @all other@
'ategory.
C" sele't additional operating segments until the 2)A threshold is met.
-. in'lude the heading @'orporate head5uarters@ as an operating segment.

AACSB: Reflective Thinking
AICPA: Decision Making

13-2
Chapter 13 - Segment and Interim Reporting
13. -er%y Company pays its e+e'utives a %onus of 6 per'ent of in'ome %efore dedu'ting the
%onus and in'ome ta+es. #or the 5uarter ended <ar'h 31, !!3, -er%y had in'ome %efore the
%onus and in'ome ta+ of (1,!!!,!!!. #or the year ended -e'em%er 31, !!3, -er%y
estimates that its in'ome %efore %onus and in'ome ta+es &ill %e (2!,!!!,!!!. #or the 5uarter
ended <ar'h 31, !!3, &hat is the amount of the %onus that -er%y should dedu't on its
in'ome statement:
A. (,,!!,!!!
B" (2!,!!!
C. (1,!)!,!!!
-. (13!,!!!

AACSB: Analytic
AICPA: Measurement

1;. In !!6 and !!2, ea'h of 7utney Company9s four operating segments met one of the
three 5uantitative tests for segment reporting. In !!3, Segment / failed to 5ualify under the
pres'ri%ed tests %e'ause of a%normal finan'ial 'onditions. *he other three segments 5ualified
for reporting. #or !!3, Segment /0
A. should %e e+'luded from segment dis'losure %ut referred to in the management letter to
shareholders.
/. should %e distin'tly separated from the other three segments and listed as a @non5ualifying@
segment.
C. should %e 'om%ined &ith one of the other three segments and reported.
#" should %e in'luded in the segment dis'losures at the dis'retion of management.

AACSB: Reflective Thinking
AICPA: Decision Making

13-3
Chapter 13 - Segment and Interim Reporting
!. Collins Company reported 'onsolidated revenue of (1!,!!!,!!! in !!3. Collins
operates in t&o geographi' areas, domesti' and Asia. *he follo&ing information pertains to
these t&o areas0

What 'al'ulation %elo& is 'orre't to determine if the revenue test is satisfied for the Asian
operations:
A. ()3,!!!,!!!B(1,!,!!!,!!!
B" ()!,!!!,!!!B(1!,!!!,!!!
C. ()3,!!!,!!!B(1!,!!!,!!!
-. ()!,!!!,!!!B(1,!,!!!,!!!

AACSB: Analytic
AICPA: Measurement

An analysis of A%%ey Company9s operating segments provides the follo&ing information0


1. Refer to the a%ove information. Whi'h of the operating segments a%ove meet the revenue
test:
A. /, -, and 4
B" A and -
C. A, /, and -
-. /, C, -, and 4

AACSB: Analytic
AICPA: Decision Making

13-;
Chapter 13 - Segment and Interim Reporting
. Refer to the a%ove information. Whi'h of the operating segments a%ove meet the
operating profit ClossD test:
A" / and 4
/. A and /
C. A, /, and 4
-. A, /, C, and 4

AACSB: Analytic
AICPA: Decision Making

3. Refer to the a%ove information. Whi'h of the operating segments a%ove are reporta%le
segments:
A. /, C, and -
/. A, /, -, and 4
C. /, -, and 4
#" A, /, C, -, and 4

AACSB: Analytic
AICPA: Decision Making

,. Crisfield Company has t&o reporta%le segments, C and -. Segment C made (,,!!!,!!! of
sales to e+ternal 'ustomers and (,!!,!!! of sales to other operating segments. Segment -, on
the other hand, made sales of (3,!!!,!!! to e+ternal 'ustomers and (1,6!!,!!! of sales to
other operating segments. Crisfield Company reported (13,!!,!!! of revenues on its
'onsolidated in'ome statement. What 'al'ulation %elo& 'orre'tly determines &hether
Crisfield Company9s reporta%le segments satisfy the 2)A revenue test:
A. (1,,!!!,!!!B(1),!!,!!!
/. (1,,!!!,!!!B(13,!!,!!!
C" (1,!!!,!!!B(13,!!,!!!
-. (1,!!!,!!!B(1),!!,!!!

AACSB: Analytic
AICPA: Measurement

13-3!
Chapter 13 - Segment and Interim Reporting
). Eeus Corporation has determined that it has 1) reporta%le operating segments. In order to
'omply &ith the standard for segment dis'losures, Eeus Corporation should do &hi'h of the
follo&ing:
A. Report 1! reporta%le segments and dis'lose the remaining ) segments as other operating
segments.
B" Report 1! reporta%le segments %y 'om%ining the most 'losely related segments.
C. Report 1) reporta%le segments as long as the 2) per'ent revenue test has %een satisfied.
-. Report 1 reporta%le segments and sho& all other operating segments in a 'olumn la%eled
@$ther $perating Segments.@

AACSB: Reflective Thinking
AICPA: Decision Making

6. #AS/ 131 re5uires 'ertain dis'losures a%out ma=or 'ustomers. All of the follo&ing
statements a%out those dis'losures are true &ith the e+'eption of &hi'h statement:
A. *he identity of the segment reporting the revenue from a signifi'ant 'ustomer must %e
dis'losed a footnote.
/. *he amount of revenue from a signifi'ant 'ustomer must %e dis'losed in a footnote.
C" #or applying the dis'losure test a threshold of 1! per'ent of total revenues is mandated.
-. A lo'al, state, or foreign government 'an %e 'onsidered a ma=or 'ustomer.

AACSB: Reflective Thinking
AICPA: Decision Making

2. *he management approa'h to the definition of segments for finan'ial reporting e+pe'ts a
'ompany to0
I. Report disaggregated information on the same organi>ational %asis as used %y the
'ompany9s internal de'ision makers.
II. Report disaggregated information for at least ten segments.
A" I
/. II
C. /oth I and II
-. .either I nor II

AACSB: Reflective Thinking
AICPA: Decision Making

13-31
Chapter 13 - Segment and Interim Reporting
3. <ain <anufa'turing Corporation reported 'onsolidated revenues of ()!,!!!,!!! on its
in'ome statement for !!3. *he management of the 'orporation identified 3 industry
segments, <, ., and $. *hese segments had the follo&ing intersegment sales and transfers
during !!30

#or <ain <anufa'turing Corporation, the revenue test &ould %e satisfied if any of its industry
segments had revenue e5ual to or greater than &hi'h of the follo&ing:
A. (2,,!!,!!!
B" (),2,!,!!!
C. (),!!!,!!!
-. (,,6!,!!!

AACSB: Analytic
AICPA: Measurement

;. Stone Company reported (1!!,!!!,!!! of revenues on its !!3 in'ome statement. -uring
the year ended -e'em%er 31, !!3, Stone made sales of (3,!!!,!!! to e+ternal 'ustomers in
Western 4urope. In addition, Stone made sales of (1!,!!!,!!! to the F.S. government and
(,,!!!,!!! of sales to various state governments. In the footnotes to its finan'ial statements
for !!3, in reporting enterprise&ide dis'losures, Stone is re5uired to dis'lose0

A" $ption A
/. $ption /
C. $ption C
-. $ption -

AACSB: Reflective Thinking
AICPA: Reporting

13-3
Chapter 13 - Segment and Interim Reporting
3!. *yler Company in'urred an inventory loss due to a de'line in market pri'es during its first
5uarter of operations in !!3. At the end of the first 5uarter, management of the 'ompany
%elieved the de'line in market pri'es to %e permanent. In the se'ond 5uarter, the market pri'es
of *yler9s inventories in'reased a%ove their a'5uisition 'ost. <arket pri'es remained higher
than a'5uisition 'ost during the remainder of !!3. ?o& should *yler report the fa'ts a%ove
on its first and se'ond 5uarter in'ome statements:

A" $ption A
/. $ption /
C. $ption C
-. $ption -

AACSB: Reflective Thinking
AICPA: Reporting

31. -enver Company, a 'alendar-year 'orporation, had the follo&ing a'tual in'ome %efore
in'ome ta+ e+pense and estimated effe'tive annual in'ome ta+ rates for the first three 5uarters
in !!30

-enver9s in'ome ta+ e+pense in its interim in'ome statement for the third 5uarter should %e0
A. (16,!!!.
B" (63,,!!.
C. (6,,!!.
-. (),,!!!.

AACSB: Analytic
AICPA: Measurement

13-33
Chapter 13 - Segment and Interim Reporting
3. APB Opinion 28 uses &hi'h vie& of interim reporting:
A" Integral
/. -is'rete
C. Segmental
-. Comprehensive

AACSB: Reflective Thinking
AICPA: Reporting

33. Whi'h of the follo&ing o%servations is true of the dis'rete vie& of interim reporting:
A. An interim period is vie&ed as an installment of an annual period.
/. Re'ognition and ad=ustment of 'ertain in'ome or e+pense items may %e affe'ted %y
=udgments a%out the e+pe'ted results of the entire year9s operations.
C" 4a'h interim period is 'onsidered as a %asi' a''ounting period to %e evaluated as if it &ere
an annual a''ounting period.
-. $ne interim period &ould not %ear the entire e+pense that %enefits more than one interim
period.

AACSB: Reflective Thinking
AICPA: Reporting

3,. <ason Company paid its annual property ta+es of (,!,!!! on #e%ruary 1), !!;. <ason
also anti'ipates that its annual repairs e+pense for !!; &ill %e (1,!!,!!!. *his amount is
usually in'urred and paid in 8uly and August &hen operations are shut do&n so that
ma'hinery and e5uipment 'an %e repaired. What amount should <ason dedu't for property
ta+es and repairs in ea'h 5uarter for !!;:

A. $ption A
B" $ption /
C. $ption C
-. $ption -

AACSB: Analytic
AICPA: Measurement

13-3,
Chapter 13 - Segment and Interim Reporting
3). *oledo Imports, a 'alendar-year 'orporation, had the follo&ing in'ome %efore ta+ e+pense
and estimated effe'tive annual in'ome ta+ rates for the first three 5uarters in !!30

*oledo9s in'ome ta+ e+pense in its interim in'ome statement for the nine months ended
Septem%er 3! and for the third 5uarter, respe'tively, are0
A. ()!,3!! and (1!3,!!.
/. (),!!! and (1!3,!!!.
C" (),!!! and (1!3,!!.
-. ()!,3!! and (1!3,!!!.

AACSB: Analytic
AICPA: Measurement

36. 4stimated gross profit rates may %e used to estimate a 'ompany9s 'ost of goods sold and
its ending inventory for0
A" 5uarterly %ut not for annual finan'ial statements.
/. %oth 5uarterly and annual finan'ial statements.
C. neither 5uarterly nor annual finan'ial statements.
-. annual %ut not for 5uarterly finan'ial statements.

AACSB: Reflective Thinking
AICPA: Decision Making

13-3)
Chapter 13 - Segment and Interim Reporting
32. -avis Company uses "I#$ for all of its inventories. -uring its se'ond 5uarter of !!;,
-avis e+perien'ed a "I#$ li5uidation. -avis fully e+pe'ts to repla'e the li5uidated inventory
in the early part of the third 5uarter. ?o& should -avis report the inventory temporarily
li5uidated on its in'ome statement for the se'ond 5uarter:
A. Cost of goods sold for the se'ond 5uarter should in'lude the a'5uisition 'ost of the goods
temporarily li5uidated.
B" Cost of goods sold for the se'ond 5uarter should in'lude the e+pe'ted repla'ement 'ost of
the goods temporarily li5uidated.
C. Cost of goods sold for the se'ond 5uarter should not in'lude the e+pe'ted repla'ement 'ost
of the goods temporarily li5uidated.
-. Cost of goods sold for the se'ond 5uarter is not affe'ted %y the temporary li5uidation of
"I#$ inventory.

AACSB: Reflective Thinking
AICPA: Decision Making

33. ?o& &ould a 'ompany report a 'hange in an a''ounting prin'iple made on the last day of
the third 5uarter:
A" Retrospe'tive appli'ation to all pre-'hange interim periods reported.
/. .o 'hange is re5uired.
C. Apply to 'urrent and prospe'tive interim periods only.
-. Apply to prospe'tive interim periods only.

AACSB: Reflective Thinking
AICPA: Decision Making

3;. <issoula Corporation disposed of one of its segments in the se'ond 5uarter and in'urred a
gain from disposal of dis'ontinued segment of (6!!,!!!, net of ta+es. What is the effe't of
this gain from disposal of dis'ontinued segment:
A. In'rease net in'ome from operations for the year %y (6!!,!!!.
B" In'rease se'ond 5uarter net in'ome %y (6!!,!!!.
C. In'rease ea'h 5uarter9s net in'ome %y (1)!,!!!.
-. In'rease ea'h of the last three 5uarters9 net in'ome %y (!!,!!!.

AACSB: Analytic
AICPA: Measurement

13-36
Chapter 13 - Segment and Interim Reporting
,!. #rahm Company in'urred a first 5uarter operating loss %efore in'ome ta+ effe't of
(,,!!!,!!!. *his is a normal o''urren'e for #rahm %e'ause of seasonal flu'tuations.
4+perien'e has demonstrated the in'ome earned during the remaining 5uarters far e+'eeds the
first 5uarter losses ea'h year. #rahm estimates its annual in'ome ta+ rate &ill %e 3! per'ent.
What net loss should #rahm report for the first 5uarter:
A. (,,!!!,!!!
B" (,3!!,!!!
C. (2!!,!!!
-. (!

AACSB: Analytic
AICPA: Measurement

,1. *he in'ome ta+ e+pense appli'a%le to the se'ond 5uarter9s in'ome statement is determined
%y0
A. dividing the estimated annual in'ome ta+ e+pense %y four and allo'ating the amount to the
se'ond 5uarter.
/. multiplying the effe'tive in'ome ta+ rate times the in'ome %efore ta+ for the se'ond
5uarter.
C" su%tra'ting the in'ome ta+ e+pense appli'a%le to the first 5uarter from the in'ome ta+
e+pense appli'a%le to the first t&o 5uarters.
-. su%tra'ting the in'ome ta+ lia%ility appli'a%le to the first 5uarter from the in'ome ta+
lia%ility appli'a%le to the first t&o 5uarters.

AACSB: Reflective Thinking
AICPA: Decision Making

,. Whi'h of the follo&ing are esta%lished %y #AS/ 131 as @enterprise&ide dis'losure@
standards to provide more information a%out the risks to a 'ompany:
I. Information a%out dominant industry segments.
II. Information a%out ma=or 'ustomers.
III. Information a%out geographi' areas
A" /oth II and III
/. /oth I and III
C. /oth I and II
-. I, II, and II

AACSB: Reflective Thinking
AICPA: Decision Making

13-32
Chapter 13 - Segment and Interim Reporting
,3. #AS/ 131 uses aCnD GGGGGG approa'h to the definition of segments.
A. line of %usiness
/. entity approa'h
C. portfolio
#" management

AACSB: Reflective Thinking
AICPA: Reporting


ssa! Questions

13-33
Chapter 13 - Segment and Interim Reporting
,,. Iona Corporation is in the pro'ess of preparing its finan'ial statements for the first 5uarter
of !!; and has asked your advi'e as to ho& to report several items. *hese items in'lude the
follo&ing events &hi'h took pla'e during the first 5uarter of !!; Cassume all amounts are
materialD0
1D Iona redeemed %onds &ith a 'arrying value of (,,!!!,!!! at a 'ost of (3,26!,!!!. *his
early e+tinguishment o''urred %e'ause Iona &ants to issue ne& de%t at lo&er interest rates.
D Iona uses the "I#$ method for its inventories. $n 8anuary 1, !!;, inventories amounted
to (1!,!!!,!!!, &hile, on <ar'h 31, !!;, inventories totaled (;,!!,!!!. Iona e+pe'ts to
repla'e the li5uidated inventory at the %eginning of the se'ond 5uarter at a 'ost of (1,!!!,!!!.
3D Iona 'hanged its depre'iation method on (,,!!!,!!! of its delivery tru'ks from the
de'lining %alan'e method to the straight-line method. $n 8anuary 1, !!;, a''umulated
depre'iation under the de'lining %alan'e method &as (,3!!,!!!. ?ad the straight-line
method %een used, a''umulated depre'iation on 8anuary 1, !!;, &ould have %een
(,3!!,!!!. *he remaining life of the tru'ks is t&o years.
,D Iona pays its top e+e'utives a %onus at year-end of 6 per'ent of operating in'ome %efore
%onus and in'ome ta+es. $perating in'ome %efore %onus and in'ome ta+es for the three
months ended <ar'h 31, !!;, &as (1!,!!!,!!!. Iona estimates that its yearly operating
in'ome %efore %onus and in'ome ta+es &ill %e (6!,!!!,!!!.
)D Iona 'loses its manufa'turing operations in 8uly of ea'h year in order to make its ma=or
annual repairs. Iona estimates that the 'ost of these repairs in !!; &ill %e (1,!!!,!!!.
Re5uired0
#or ea'h of the events num%ered 1 through ), indi'ate ho& that event should %e reported on
Iona9s in'ome statement for the three months ended <ar'h 31, !!;, and the %alan'e sheet
a''ounts effe'ts at <ar'h 31, !!;. Ignore in'ome ta+es.
13-3;
Chapter 13 - Segment and Interim Reporting
1D Iona should report a gain Cnonoperating i.e., not e+traordinaryD from early e+tinguishment
of de%t for (,!,!!! on the in'ome statement. $n the %alan'e sheet, long-term de%t &ill %e
redu'ed %y (,,!!!,!!!, retained earnings &ill in'rease %y (,!,!!!, and 'ash &ill %e redu'ed
%y (3,26!,!!!.
D Cost of goods sold should %e in'reased %y (1,!!!,!!!, the e+pe'ted repla'ement 'ost of
inventory. *his assumes the 'ost of the li5uidated inventory &as not part of 'ost of goods sold.
If the 'ost of the li5uidated inventory has %een 'harged to 'ost of goods sold, then only the
differen'e %et&een the e+pe'ted repla'ement 'ost of (1,!!!,!!! and the 'ost of the inventory
li5uidated of (3!!,!!! should %e the in'rease to 'ost of goods sold. $n the %alan'e sheet,
inventory should %e reported at (;,!!,!!!, and a lia%ility titled @4+'ess of Repla'ement Cost
$ver "ifo Cost of Inventory "i5uidated@ should %e reported at (!!,!!!.
3D *he remaining %ook value of the tru'ks is (1,!!,!!! and &ill %e depre'iated over t&o
years, a''ounted for 'urrently and prospe'tively as a 'hange in estimate. *he 'urrent annual
depre'iation e+pense of (6!!,!!! is allo'ated 5uarterly and therefore (1)!,!!! is an
operating e+pense in the first 5uarter. $n the %alan'e sheet, the a''umulated depre'iation is
(,3!!,!!! CpriorD and (1)!,!!! C'urrentD I (,;)!,!!!.
,D *he %onus is a''rued for the first 5uarter %ased upon the in'ome of the 5uarter, not the
estimate of in'ome for the year. /onus e+pense is 6A J (1!,!!!,!!!, or (6!!,!!!, for the 1st
5uarter. $n the <ar'h 31, !!;, %alan'e sheet, the lia%ility for the a''rued %onus &ould %e
reported as a 'urrent lia%ility of (6!!,!!!.
)D Sin'e the repairs %enefit the entire year, ea'h 5uarter is %enefited %y the repairs made in
8uly. It is 'orre't to use the straight-line method to allo'ate the repairs in the a%sen'e of any
other approa'h. *herefore, 1B, C(1,!!!,!!!D, or ()!,!!!, should %e 'harged to repairs
e+pense in the first 5uarter. $n the <ar'h 31, !!;, %alan'e sheet, the ()!,!!! should %e
dis'losed as a 'urrent lia%ility and titled @A''rued Repairs 7aya%le.@

AACSB: Communication
AICPA: Measurement

13-,!
Chapter 13 - Segment and Interim Reporting
,). Ridge Company is in the pro'ess of determining its reporta%le segments for the year
ended -e'em%er 31, !!3. As the person responsi%le for determining this information, you
gather the follo&ing information0

Re5uired0
aD Fsing the appropriate tests, determine &hi'h of the industry segments listed a%ove are
reporta%le for !!3. Sho& your supporting 'omputations in good form.
%D Indi'ate &hether or not Ridge9s reporta%le segments satisfy the 2) per'ent test. Sho& your
supporting 'omputations in good form.
13-,1
Chapter 13 - Segment and Interim Reporting

Con'lusions from the tests0
1. $perating segments A, ", and R satisfy the revenue test.
. $perating segments A, ", R, and E satisfy the segment profit ClossD test.
3. $perating segments A, R, and E satisfy the identifia%le assets test.
Con'lusion0
Segments A, ", R, and E are reporta%le segments &hile segments < and S are not.
%D *he 2) per'ent test is 'al'ulated as follo&s0

Con'lusion0 *he 2) per'ent revenue test is satisfied.

AACSB: Analytic
AICPA: Reporting

13-,
Chapter 13 - Segment and Interim Reporting
,6. "loyd Corporation reports the follo&ing information for !!3 for its three operating
segments0


Indire't operating e+penses are allo'ated to segments %ased upon the ratio of ea'h segment9s
tra'ea%le operating e+penses to total tra'ea%le operating e+penses. Interest e+pense is
allo'ated to segments %ased upon the ratio of ea'h segment9s sales to total sales.
Re5uired0
aD Cal'ulate the operating profit or loss for ea'h of the segments for !!3.
%D -etermine &hi'h segments are reporta%le, applying the operating profit or loss test.
aD $perating profit or loss for ea'h segment.

.ote0 1eneral 'orporate e+penses are not allo'ated for the purpose of identifying reporta%le
segments.
%D Reporta%le segments.
Segments / and C %oth meet the operating profit or loss test. *he a%solute dollar amount of
their respe'tive operating profit and loss amounts are 1!A or more of the a%solute dollar
amount of the 'om%ined segment operating losses of (1)2,!!! C(1!,!!! loss K (1,2,!!!
lossD.

13-,3
Chapter 13 - Segment and Interim Reporting
AACSB: Analytic
AICPA: Measurement

,2. *he information %elo& is for the se'ond 5uarter of *ampa Company for !!30

Re5uired0
7repare an interim in'ome statement for the se'ond 5uarter for *ampa Company. Assume the
"I#$ li5uidation is e+pe'ted to %e restored %y the end of !!3.
13-,,
Chapter 13 - Segment and Interim Reporting
In'ome statement for the se'ond 5uarter for *ampa Company0

.ote0 Cost of sales &as (1,,!!,!!! %e'ause the "I#$ li5uidation &as e+pe'ted to %e
restored %y the end of !!3. 1ains from early e+tinguishment of de%t are no longer reported
as e+traordinary items unless material and spe'ifi'ally deemed as su'h. In'ome ta+ e+pense
for the se'ond 5uarter is 'al'ulated on 'umulative in'ome %efore ta+ for the first t&o 5uarters
and then net of in'ome ta+ e+pense from the first 5uarter.

AACSB: Analytic
AICPA: Measurement

13-,)
Chapter 13 - Segment and Interim Reporting
,3. #AS/ 131, -is'losure a%out Segments of an 4nterprise and Related Information, has
taken &hat has %een referred to as a @management approa'h@ to the definition of a segment
and the allo'ation of 'osts to a segment.
Re5uired0
aD What is meant %y a management approa'h: ?o& does this 'on'ept of a management
approa'h impa't the de'ision to dis'lose information:
%D ?o& are de'isions a%out 'ost allo'ation handled in segment dis'losures:
aD #AS/ 131 fo'uses on finan'ial information that an enterprise9s finan'ial de'ision makers
use to evaluate the entity9s operating segments. *he information provided a%out segments
should 'orrespond to the internal organi>ation stru'ture used %y the 'hief operating de'ision
maker in de'iding ho& to allo'ate resour'es and in assessing performan'e.
%D #AS/ 131 stated that the allo'ations of revenues and 'osts should %e in'luded for a
reported segment only if they are in'luded in the segment9s profit or loss that the 'hief
operating de'ision maker uses.

AACSB: Communication
AICPA: Reporting

,;. #AS/ has spe'ified a @2)A per'ent 'onsolidated revenue test@.
Re5uired0
aD What is the 2)A test:
%D ?o& is the 2)A test impa'ted %y the @1!A Signifi'an'e Rule@:
aD *he total revenue from e+ternal sour'es %y all separately reporta%le operating segments
must e5ual at least 2)A of the total 'onsolidated revenue.
%D *he reporting entity must identify additional operating segments as reporta%le until this
2)A test is met. *he 1!A Signifi'an'e Rule in'ludes segments that have signifi'ant
intersegment sales. If there are more then ten reporta%le segments then the segments should %e
aggregated until 2)A of the e+ternal revenue is dis'losed. An entity does not have to have ten
reporta%le segments.

AACSB: Communication
AICPA: Reporting

13-,6
Chapter 13 - Segment and Interim Reporting
)!. Interim in'ome statements are re5uired for Smith $r'hards. Smith does most of its sales in
the fall 5uarter of the year. *hese sales are %oth to individual and 'ommer'ial 'ustomers. ?o&
do you re'ommend Smith report sales during the spring 5uarter of the year:
Smith $r'hards should %e en'ouraged to supplement their interim reports &ith information
for the 1-month periods ending at the interim date for %oth the 'urrent and pre'eding years.
*his form of dis'losure redu'es the possi%ility that users of the reports might make
un&arranted inferen'es a%out the annual results from an interim report &ith material seasonal
variations.

AACSB: Communication
AICPA: Reporting

13-,2