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Chapter 08 - Segment and Interim Reporting

Chapter 08
Segment and Interim Reporting
Multiple Choice Questions

1. Generally accepted accounting principles require a U.S. corporation to disclose the


following disaggregated information for each operating segment, except:
A. Revenues from external customers.
B. Discontinued operations.
C. Cost of goods sold.
D. Depreciation expense.
E. Intersegment revenues.

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

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?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

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4. Kaycee Corporation's revenues for the year ended December 31, 2010, were as follows:
Consolidated Revenue per the Income Statement: $1,200,000
Upstream Intersegment Sales: $180,000
Downstream 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?
A. $24,000.
B. $120,000.
C. $138,000.
D. $144,000.
E. $0

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

5. According to the revenue test, which segments would require disaggregation?


A. A, B, D, and E.
B. A and B.
C. B and C.
D. A, B, and D.
E. C, D, and E.

6. According to the profit or loss test, which segments would require disaggregation?
A. A, B, D, and E.
B. A, B, C, and E.
C. A, B, and D.
D. A and D.
E. A only.

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

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?
A. $1,670,000.
B. $12,525,000.
C. $15,487,500.
D. $16,700,000.
E. $20,650,000.

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?
A. The products sold by each segment are produced in the same plant.
B. Both segments have several customers in common.
C. The segments may sell different products, but they have a similar production process.
D. Both segments are required to adhere to U.S. Department of Labor regulations regarding
immigration laws.
E. Both segments are owned by the same parent company.

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

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

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10. Combined segment revenues are calculated to be


A. $29,400.
B. $25,200.
C. $26,600.
D. $28,000.
E. $27,300.

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

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?
A. $57,680.
B. $64,960.
C. $52,640.
D. $78,960.
E. $63,560.

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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.
A. I, II, and III
B. I and III only
C. II and III only
D. I and II only
E. There is no requirement of information to disclose for operating segments.

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

Which one of the following statements is true?


A. Segment A is a reportable segment based on this test.
B. Segment B is not a reportable segment based on this test.
C. Segment E is a reportable segment based on this test.
D. Segment C is not a reportable segment based on this test.
E. Segment D is a reportable segment based on this test.

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Retro Corp. was engaged solely in manufacturing operations. The following data pertain to
the operating segments for 2011:

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

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

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

18. Which of the following statements is true regarding the determination of operating
segments in order to decide which segments will be separately reported?
A. An operating segment is a component of an enterprise that engages in business activities
from which it only earns revenues.
B. The operating results of an operating segment are reviewed regularly by the corporate
controller to assess performance.
C. There is integral financial information available for each operating segment.
D. An organizational unit can be an operating segment if all of its revenues or expenses result
from transactions with other segments.
E. All parts of a company must be included in some operating segment.

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.
A. I, II, and III.
B. I and III only.
C. I and II only.
D. II and III only.
E. None of the above.

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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?
A. The geographical location of the operations.
B. The nature of the production process.
C. The distribution methods.
D. The nature of the regulatory environment, if applicable.
E. The type or class of customer.

21. The hardware operating segment of Bloom Corporation has the following revenues for the
year ended December 31, 2011:

For purposes of the revenue test, what amount will be used as total revenues of the hardware
operating segment?
A. $417,000.
B. $440,000.
C. $424,000.
D. $460,000.
E. $480,000.

22. Which of the following statements is false concerning the number of operating segments
that should be disclosed?
A. At least 75 percent of total company sales made to outsiders should be presented.
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.
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.
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.
E. The practical limit to the number of operating segments is 10.

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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?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

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

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

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

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

27. Which operating segments are reportable under the revenue test?
A. Pails and Hardware.
B. Rakes, Pails, and Hardware.
C. Rakes, Hardware, and Accessories.
D. Rakes and Pails.
E. Rakes and Hardware.

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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?
A. $8.2.
B. $9.0
C. $10.4.
D. $13.0.
E. $82.0.

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

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?
A. $12.5.
B. $15.2.
C. $17.2.
D. $18.4.
E. $19.8.

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

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

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

33. According to the revenues test, which segment(s) are separately reportable?
A. Silver only.
B. Crystal and Silver.
C. China and Crystal.
D. China and Silver.
E. China, Crystal, and Silver.

Peterson Corporation has three operating segments with the following information:

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

35. According to the revenues test, which segment(s) are separately reportable?
A. Mowers only.
B. Mowers and Edgers.
C. Mowers and Weedeaters.
D. Edgers and Weedeaters.
E. Mowers, Edgers, and Weedeaters.

36. What amount of revenues must be generated from one customer before that party must be
identified as a major customer?
A. $3,900.
B. $4,000.
C. $4,100.
D. $4,200.
E. $4,400.

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

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

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

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

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

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41. Which operating segments are separately reportable under the revenues test?
A. DVDs only.
B. DVDs and MP3s.
C. DVDs and VCRs.
D. VCRs and MP3s.
E. DVDs, VCRs, and MP3s.

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

43. Which operating segments are separately reportable under the assets test?
A. DVDs only.
B. DVDs and MP3s.
C. DVDs and VCRs.
D. VCRs and MP3s.
E. DVDs, VCRs, and MP3s.

44. Which of the segments are separately reportable?


A. DVDs only.
B. DVDs and MP3s.
C. DVDs and VCRs.
D. VCRs and MP3s.
E. DVDs, VCRs, and MP3s.

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45. Which of the following statements is true according to U.S. GAAP regarding segment or
enterprise-wide disclosure?
A. A reconciliation of segment assets to consolidated assets is required.
B. Segment information does not have to be in accordance with generally accepted accounting
principles.
C. Disclosure of a major customer's identity is required.
D. Geographic area information must be disclosed in interim financial statements.
E. A company comprised of only one operating segment does not have to report geographic
area information.

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

47. Which of the following operating segment disclosures is not required by U.S. GAAP?
A. Interest expense.
B. Intersegment sales.
C. Extraordinary items.
D. Discontinued operations.
E. Liabilities.

48. Vapor Corporation has a fan products operating segment. Which of the following items
does Vapor not have to report for this segment?
A. Depreciation expense.
B. Amortization expense.
C. Research and development expense.
D. Interest expense.
E. Interest income.

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

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

51. Which of the following statements is true?


A. In determining reportable segments, two tests are applied and both must be met.
B. In determining reportable segments, three tests are applied and all three must be met.
C. In determining reportable segments, two tests are applied and only one must be met.
D. In determining reportable segments, three tests are applied and only one must be met.
E. In determining reportable segments, at least 80% of the revenues from external customers
must be reported.

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?
A. France, Germany, All Other Countries.
B. United States, Europe, Canada.
C. United States, Africa, Europe, Asia.
D. United States, Canada, Mexico, Germany.
E. North America, Spain, All Other Countries.

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

54. What information does U.S. GAAP require to be disclosed for a major customer?
A. The identity of the customer.
B. The operating segment reporting sales to the customer.
C. The geographic area of the customer.
D. The percentage of sales derived from the customer.
E. The length of time the customer has been a customer of the company.

55. How should revenues be recognized in interim periods?


A. In the same way as they are recognized on an annual basis.
B. On the cash basis.
C. On an annualized basis.
D. On a seasonal basis.
E. There are no revenues recognized in interim periods.

56. Which of the following is not correct regarding inventory procedures reported in an
interim financial statement?
A. LIFO liquidations expected to be replaced by the end of the year are accounted for in cost
of goods sold at expected replacement cost rather than original LIFO cost.
B. Lower-of-cost-or-market adjustments are not made for the interim period if they are
expected to reverse by the end of the year.
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.
D. FIFO is remeasured using the LIFO method in an interim financial statement.
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.

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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.

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

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

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

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59. Betsy Kirkland, Inc. incurred a flood loss during the first quarter of 2011 that is deemed
both unusual and infrequent. 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:
A. Ignore the loss.
B. Record the loss in the first quarter as an extraordinary loss, net of income taxes.
C. Record one-fourth of the loss in the first quarter as an extraordinary loss, net of income
taxes.
D. Ignore the loss in the first quarter, and record it in the annual statement only.
E. Record the loss in the first quarter, but not as an extraordinary loss, and disclose the loss in
a separate note or in the income statement as a separate line item.

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

61. Which of the following is not a required disclosure in an interim financial report?
A. Sales or gross revenues.
B. Provision for income taxes.
C. Extraordinary items.
D. Gains on sales of major equipment.
E. Earnings per share.

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

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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
A. I and III only.
B. I and II only.
C. I, II and III.
D. II and III only.
E. I, II, III, and IV.

64. How are extraordinary gains reported in a third quarter interim financial report?
A. Recognized at year-end only.
B. Recognized in the first quarter.
C. Recognized ratably over the first three quarters.
D. Recognized in the third quarter.
E. Ignored.

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

66. Which of the following is reported for interim financial reports using the discrete
approach?
A. Income tax expense.
B. Seasonal items.
C. Change in accounting principle.
D. Property tax expense.
E. Extraordinary gains.

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67. Which of the following is reported for interim financial reports using the integral
approach?
A. Bonus expense.
B. Extraordinary losses.
C. Cash basis accounting.
D. Extraordinary gains.
E. Change in accounting principle.

68. How should seasonal revenues be reported in an interim financial statement?


A. The seasonal nature should be disclosed, and a pro forma report for the next 12-month
period should supplement the interim report.
B. The seasonal nature should be disclosed but no other reports should accompany the interim
report.
C. The seasonal nature should be disclosed, and a supplemental report for the 12-month
period ended at the interim date should supplement the interim report.
D. The financial statements should be adjusted to reflect the assumption that no seasonal
revenues could be earned.
E. Seasonal revenues have no particular reporting requirement.

69. Which of the following are required to be disclosed in interim reports?


A. Cash flows from investing activities.
B. Change in cash.
C. Total current liabilities.
D. Total assets.
E. Gross revenues.

70. All of the following are required to be reported in interim financial statements for a
material operating segment except:
A. Segment assets.
B. Segment revenues from external customers.
C. Intersegment revenues.
D. Segment profit or loss.
E. Reconciliation of segment profit or loss to total income before taxes.

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71. What is the appropriate treatment in an interim financial report for inventory that has
market value below cost?
A. The loss should always be recorded in the interim period in which market value drops
below cost.
B. The loss should be recorded in the interim period in which market value drops below cost
if the loss is considered temporary.
C. The loss should be recorded in the interim period in which market value drops below cost
if the loss is considered permanent.
D. The loss should be ignored for interim reporting purposes.
E. There is no loss to report.

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

73. What is the appropriate treatment in an interim financial report for a LIFO liquidation?
A. The LIFO liquidation is always ignored for interim reporting.
B. The LIFO liquidation should always be reflected in gross profit on an interim income
statement.
C. The LIFO liquidation should always result in replacement cost valuation of ending
inventory on the interim balance sheet and the interim income statement.
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.
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.

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

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

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

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77. How should contingencies be reported in an interim report?


A. Disclosed the same way as they are disclosed in annual reports.
B. Disclosed in the interim period discovered, and ignored in all future periods.
C. Recorded as gains or losses as incurred.
D. Recorded as gains or losses only if material.
E. Ignored.

Provo, Inc. has an estimated annual tax rate of 35 percent in the first quarter of 2011. Pretax
income for the first quarter was $300,000. At the end of the second quarter of 2011, 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-oftax presentation.

78. How much income tax expense is recognized in the first quarter of 2011?
A. $0.
B. $26,250.
C. $96,000.
D. $105,000.
E. $112,000.

79. How much income tax expense is recognized in the second quarter of 2011?
A. $103,000.
B. $104,000.
C. $112,000.
D. $122,500.
E. $208,000.

8-25

Chapter 08 - Segment and Interim Reporting

Baker Corporation changed from the LIFO method to the FIFO method for inventory
valuation during 2011. 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:

80. Assuming Baker makes the change in the first quarter of 2011, how much is reported as
net income for the first quarter of 2011?
A. $492,000.
B. $494,800.
C. $500,000.
D. $505,200.
E. $527,950.

81. Assuming Baker makes the change in the first quarter of 2011, compute net income per
common share.
A. $4.92.
B. $4.95.
C. $5.00.
D. $5.05.
E. $5.28.

8-26

Chapter 08 - Segment and Interim Reporting

82. Assuming Baker makes the change in the first quarter of 2011, how much is reported as
net income for the first quarter of 2010?
A. $300,000.
B. $322,750.
C. $335,000.
D. $265,000.
E. $277,250.

83. Assuming Baker makes the change in the first quarter of 2011 and that $400,000 net
income is earned during the second quarter, how much is reported as net income for the
second quarter of 2011?
A. $400,000.
B. $405,200.
C. $427,950.
D. $894,850.
E. $905,200.

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.
B. No fourth-quarter report is required.
C. No company may publish a fourth-quarter report.
D. The SEC requires selected quarterly financial data to be reported separately as a fourthquarter report.
E. When fourth-quarter financial statements are provided, special accounting items should be
disclosed in the annual financial statements.

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

8-27

Chapter 08 - Segment and Interim Reporting

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?
A. IFRS and U.S. GAAP do not each require disclosure of segment liabilities.
B. IFRS and U.S. GAAP both require disclosure of intangible assets attributable to geographic
segments.
C. According to IFRS, operating segments can be based on products and services.
D. According to IFRS, operating segments can be based on geographic areas.
E. IFRS and U.S. GAAP both require disclosure of total assets.

Essay Questions

87. What is the major objective of segment reporting?

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

89. Why are quarterly financial statements required to be published for publicly traded
companies in the U.S.?

8-28

Chapter 08 - Segment and Interim Reporting

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

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

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

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

8-29

Chapter 08 - Segment and Interim Reporting

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

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

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

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

8-30

Chapter 08 - Segment and Interim Reporting

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

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

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

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?

8-31

Chapter 08 - Segment and Interim Reporting

102. Burnside Corp. is organized into four operating segments. The following segment
information was generated by the internal reporting system in 2011:

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.

Faru Co. identified five industry segments: (1) plastics, (2) metals, (3) lumber, (4) paper, and
(5) finance. Each of these segments had been consolidated appropriately by the company in
producing its annual financial statements. Information describing each segment is presented
below (in thousands).

8-32

Chapter 08 - Segment and Interim Reporting

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

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

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

8-33

Chapter 08 - Segment and Interim Reporting

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

Required:
(a.) Which operating segments are reportable under the revenue test?
(b.) What is the total amount of revenues in applying the revenues test?
(c.) Which operating segments are reportable under the profit or loss test?
(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?
(e.) Which operating segments are reportable under the asset test?
(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?
(g.) Which operating segments are reportable?
(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.

On February 23, 2011, Cleveland, Inc., paid property taxes of $300,000 for the calendar year
2011.

8-34

Chapter 08 - Segment and Interim Reporting

107. How much of this expense should be included in Cleveland's net income for the quarter
ending March 31, 2011?

108. Prepare the journal entry for the payment of property taxes on February 23, 2011.

Gregor, Inc., uses the LIFO cost-flow assumption to value inventory. Inventory for Gregor on
January 1, 2011 was 100 units at a LIFO cost of $25 per unit. During the first quarter of 2011,
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.

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, 2011?

8-35

Chapter 08 - Segment and Interim Reporting

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, 2011?

Harrison Company, Inc. began operations on January 1, 2010, and applied the LIFO method
for inventory valuation. On June 10, 2011, Harrison adopted the FIFO method of accounting
for inventory. Additional information is as follows:

The LIFO method was applied during the first quarter of 2011 and the FIFO method was
applied during the second quarter of 2011 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.

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

8-36

Chapter 08 - Segment and Interim Reporting

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,
2010 and 2011.

The following information for Urbanski Corporation relates to the three months ending June
30, 2011:

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.

113. Compute cost of goods sold and gross profit for the quarter ending June 30, 2011.

8-37

Chapter 08 - Segment and Interim Reporting

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.
Refer To: 08-114

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.
Refer To: 08-114

8-38

Chapter 08 - Segment and Interim Reporting


Matching Questions

116. For each of the following situations, select the best answer concerning segment
disclosures of reportable segments.
1. Not required to be disclosed by
either an operating segment or a
geographical segment
2. Required to be disclosed by an
operating segment, but not a
geographical segment
3. Required to be disclosed by an
operating segment, but not a
geographical segment
4. Required to be disclosed by an
operating segment, but not a
geographical segment
5. Required to be disclosed by an
operating segment, but not a
geographical segment
6. Not required to be disclosed by
either an operating segment or a
geographical segment
7. Required to be disclosed by both
an operating segment and a
geographical segment
8. Required to be disclosed by an
operating segment, but not a
geographical segment
9. Required to be disclosed by both
an operating segment and a
geographical segment
10. Required to be disclosed by a
geographical segment, but not an
operating segment
11. Required to be disclosed by an
operating segment, but not a
geographical segment

Factors used to identify segments. ____


Revenues from external
customers. ____
Types of products and services
from which each segment derives its
revenues. ____
Names of major customers. ____
Revenues from transactions with
other segments. ____
Interest revenue. ____
Long-lived assets. ____
Discontinued operations and
extraordinary items, when
applicable. ____
Income tax expense or benefit. ____
Revenues for the domestic
country. ____
Cash flow information ____

8-39

Chapter 08 - Segment and Interim Reporting

Chapter 08 Segment and Interim Reporting Answer Key

Multiple Choice Questions

1. Generally accepted accounting principles require a U.S. corporation to disclose the


following disaggregated information for each operating segment, except:
A. Revenues from external customers.
B. Discontinued operations.
C. Cost of goods sold.
D. Depreciation expense.
E. Intersegment revenues.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-03 List the basic disclosure requirements for operating segments.

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-40

Chapter 08 - Segment and Interim Reporting

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?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Difficulty: Easy
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

4. Kaycee Corporation's revenues for the year ended December 31, 2010, were as follows:
Consolidated Revenue per the Income Statement: $1,200,000
Upstream Intersegment Sales: $180,000
Downstream 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?
A. $24,000.
B. $120,000.
C. $138,000.
D. $144,000.
E. $0

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-41

Chapter 08 - Segment and Interim Reporting

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

5. According to the revenue test, which segments would require disaggregation?


A. A, B, D, and E.
B. A and B.
C. B and C.
D. A, B, and D.
E. C, D, and E.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

6. According to the profit or loss test, which segments would require disaggregation?
A. A, B, D, and E.
B. A, B, C, and E.
C. A, B, and D.
D. A and D.
E. A only.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-42

Chapter 08 - Segment and Interim Reporting

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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?
A. $1,670,000.
B. $12,525,000.
C. $15,487,500.
D. $16,700,000.
E. $20,650,000.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-43

Chapter 08 - Segment and Interim Reporting

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?
A. The products sold by each segment are produced in the same plant.
B. Both segments have several customers in common.
C. The segments may sell different products, but they have a similar production process.
D. Both segments are required to adhere to U.S. Department of Labor regulations regarding
immigration laws.
E. Both segments are owned by the same parent company.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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

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

10. Combined segment revenues are calculated to be


A. $29,400.
B. $25,200.
C. $26,600.
D. $28,000.
E. $27,300.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-44

Chapter 08 - Segment and Interim Reporting

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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?
A. $57,680.
B. $64,960.
C. $52,640.
D. $78,960.
E. $63,560.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-45

Chapter 08 - Segment and Interim Reporting

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.
A. I, II, and III
B. I and III only
C. II and III only
D. I and II only
E. There is no requirement of information to disclose for operating segments.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-03 List the basic disclosure requirements for operating segments.

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

Which one of the following statements is true?


A. Segment A is a reportable segment based on this test.
B. Segment B is not a reportable segment based on this test.
C. Segment E is a reportable segment based on this test.
D. Segment C is not a reportable segment based on this test.
E. Segment D is a reportable segment based on this test.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-46

Chapter 08 - Segment and Interim Reporting

Retro Corp. was engaged solely in manufacturing operations. The following data pertain to
the operating segments for 2011:

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-47

Chapter 08 - Segment and Interim Reporting

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-48

Chapter 08 - Segment and Interim Reporting

18. Which of the following statements is true regarding the determination of operating
segments in order to decide which segments will be separately reported?
A. An operating segment is a component of an enterprise that engages in business activities
from which it only earns revenues.
B. The operating results of an operating segment are reviewed regularly by the corporate
controller to assess performance.
C. There is integral financial information available for each operating segment.
D. An organizational unit can be an operating segment if all of its revenues or expenses result
from transactions with other segments.
E. All parts of a company must be included in some operating segment.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 08-01 Understand how an enterprise determines its operating segments and the factors that influence this
determination.

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.
A. I, II, and III.
B. I and III only.
C. I and II only.
D. II and III only.
E. None of the above.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 08-01 Understand how an enterprise determines its operating segments and the factors that influence this
determination.
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-49

Chapter 08 - Segment and Interim Reporting

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?
A. The geographical location of the operations.
B. The nature of the production process.
C. The distribution methods.
D. The nature of the regulatory environment, if applicable.
E. The type or class of customer.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

21. The hardware operating segment of Bloom Corporation has the following revenues for the
year ended December 31, 2011:
For purposes of the revenue test, what amount will be used as total revenues of the hardware
operating segment?
A. $417,000.
B. $440,000.
C. $424,000.
D. $460,000.
E. $480,000.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-50

Chapter 08 - Segment and Interim Reporting

22. Which of the following statements is false concerning the number of operating segments
that should be disclosed?
A. At least 75 percent of total company sales made to outsiders should be presented.
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.
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.
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.
E. The practical limit to the number of operating segments is 10.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-51

Chapter 08 - Segment and Interim Reporting

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?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Difficulty: Easy
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-03 List the basic disclosure requirements for operating segments.

8-52

Chapter 08 - Segment and Interim Reporting

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-03 List the basic disclosure requirements for operating segments.

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

8-53

Chapter 08 - Segment and Interim Reporting

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

27. Which operating segments are reportable under the revenue test?
A. Pails and Hardware.
B. Rakes, Pails, and Hardware.
C. Rakes, Hardware, and Accessories.
D. Rakes and Pails.
E. Rakes and Hardware.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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?
A. $8.2.
B. $9.0
C. $10.4.
D. $13.0.
E. $82.0.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-54

Chapter 08 - Segment and Interim Reporting

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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?
A. $12.5.
B. $15.2.
C. $17.2.
D. $18.4.
E. $19.8.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-55

Chapter 08 - Segment and Interim Reporting

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

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

33. According to the revenues test, which segment(s) are separately reportable?
A. Silver only.
B. Crystal and Silver.
C. China and Crystal.
D. China and Silver.
E. China, Crystal, and Silver.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-56

Chapter 08 - Segment and Interim Reporting

Peterson Corporation has three operating segments with the following information:

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

35. According to the revenues test, which segment(s) are separately reportable?
A. Mowers only.
B. Mowers and Edgers.
C. Mowers and Weedeaters.
D. Edgers and Weedeaters.
E. Mowers, Edgers, and Weedeaters.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-57

Chapter 08 - Segment and Interim Reporting

36. What amount of revenues must be generated from one customer before that party must be
identified as a major customer?
A. $3,900.
B. $4,000.
C. $4,100.
D. $4,200.
E. $4,400.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-58

Chapter 08 - Segment and Interim Reporting

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-59

Chapter 08 - Segment and Interim Reporting

41. Which operating segments are separately reportable under the revenues test?
A. DVDs only.
B. DVDs and MP3s.
C. DVDs and VCRs.
D. VCRs and MP3s.
E. DVDs, VCRs, and MP3s.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

43. Which operating segments are separately reportable under the assets test?
A. DVDs only.
B. DVDs and MP3s.
C. DVDs and VCRs.
D. VCRs and MP3s.
E. DVDs, VCRs, and MP3s.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Difficulty: Easy
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-60

Chapter 08 - Segment and Interim Reporting

44. Which of the segments are separately reportable?


A. DVDs only.
B. DVDs and MP3s.
C. DVDs and VCRs.
D. VCRs and MP3s.
E. DVDs, VCRs, and MP3s.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

45. Which of the following statements is true according to U.S. GAAP regarding segment or
enterprise-wide disclosure?
A. A reconciliation of segment assets to consolidated assets is required.
B. Segment information does not have to be in accordance with generally accepted accounting
principles.
C. Disclosure of a major customer's identity is required.
D. Geographic area information must be disclosed in interim financial statements.
E. A company comprised of only one operating segment does not have to report geographic
area information.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-03 List the basic disclosure requirements for operating segments.

8-61

Chapter 08 - Segment and Interim Reporting

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

47. Which of the following operating segment disclosures is not required by U.S. GAAP?
A. Interest expense.
B. Intersegment sales.
C. Extraordinary items.
D. Discontinued operations.
E. Liabilities.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-03 List the basic disclosure requirements for operating segments.

48. Vapor Corporation has a fan products operating segment. Which of the following items
does Vapor not have to report for this segment?
A. Depreciation expense.
B. Amortization expense.
C. Research and development expense.
D. Interest expense.
E. Interest income.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-03 List the basic disclosure requirements for operating segments.

8-62

Chapter 08 - Segment and Interim Reporting

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-04 Determine when and what types of information must be disclosed for geographic areas.

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-01 Understand how an enterprise determines its operating segments and the factors that influence this
determination.

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Chapter 08 - Segment and Interim Reporting

51. Which of the following statements is true?


A. In determining reportable segments, two tests are applied and both must be met.
B. In determining reportable segments, three tests are applied and all three must be met.
C. In determining reportable segments, two tests are applied and only one must be met.
D. In determining reportable segments, three tests are applied and only one must be met.
E. In determining reportable segments, at least 80% of the revenues from external customers
must be reported.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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?
A. France, Germany, All Other Countries.
B. United States, Europe, Canada.
C. United States, Africa, Europe, Asia.
D. United States, Canada, Mexico, Germany.
E. North America, Spain, All Other Countries.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 08-04 Determine when and what types of information must be disclosed for geographic areas.

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 08-04 Determine when and what types of information must be disclosed for geographic areas.

8-64

Chapter 08 - Segment and Interim Reporting

54. What information does U.S. GAAP require to be disclosed for a major customer?
A. The identity of the customer.
B. The operating segment reporting sales to the customer.
C. The geographic area of the customer.
D. The percentage of sales derived from the customer.
E. The length of time the customer has been a customer of the company.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-05 Apply the criterion for determining when disclosure of a major customer is required.

55. How should revenues be recognized in interim periods?


A. In the same way as they are recognized on an annual basis.
B. On the cash basis.
C. On an annualized basis.
D. On a seasonal basis.
E. There are no revenues recognized in interim periods.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-65

Chapter 08 - Segment and Interim Reporting

56. Which of the following is not correct regarding inventory procedures reported in an
interim financial statement?
A. LIFO liquidations expected to be replaced by the end of the year are accounted for in cost
of goods sold at expected replacement cost rather than original LIFO cost.
B. Lower-of-cost-or-market adjustments are not made for the interim period if they are
expected to reverse by the end of the year.
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.
D. FIFO is remeasured using the LIFO method in an interim financial statement.
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.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

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.

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Chapter 08 - Segment and Interim Reporting

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

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-67

Chapter 08 - Segment and Interim Reporting

59. Betsy Kirkland, Inc. incurred a flood loss during the first quarter of 2011 that is deemed
both unusual and infrequent. 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:
A. Ignore the loss.
B. Record the loss in the first quarter as an extraordinary loss, net of income taxes.
C. Record one-fourth of the loss in the first quarter as an extraordinary loss, net of income
taxes.
D. Ignore the loss in the first quarter, and record it in the annual statement only.
E. Record the loss in the first quarter, but not as an extraordinary loss, and disclose the loss in
a separate note or in the income statement as a separate line item.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-68

Chapter 08 - Segment and Interim Reporting

61. Which of the following is not a required disclosure in an interim financial report?
A. Sales or gross revenues.
B. Provision for income taxes.
C. Extraordinary items.
D. Gains on sales of major equipment.
E. Earnings per share.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-07 List the minimum disclosure requirements for interim financial reports.

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-07 List the minimum disclosure requirements for interim financial reports.

8-69

Chapter 08 - Segment and Interim Reporting

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
A. I and III only.
B. I and II only.
C. I, II and III.
D. II and III only.
E. I, II, III, and IV.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-07 List the minimum disclosure requirements for interim financial reports.

64. How are extraordinary gains reported in a third quarter interim financial report?
A. Recognized at year-end only.
B. Recognized in the first quarter.
C. Recognized ratably over the first three quarters.
D. Recognized in the third quarter.
E. Ignored.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-70

Chapter 08 - Segment and Interim Reporting

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

66. Which of the following is reported for interim financial reports using the discrete
approach?
A. Income tax expense.
B. Seasonal items.
C. Change in accounting principle.
D. Property tax expense.
E. Extraordinary gains.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

67. Which of the following is reported for interim financial reports using the integral
approach?
A. Bonus expense.
B. Extraordinary losses.
C. Cash basis accounting.
D. Extraordinary gains.
E. Change in accounting principle.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-71

Chapter 08 - Segment and Interim Reporting

68. How should seasonal revenues be reported in an interim financial statement?


A. The seasonal nature should be disclosed, and a pro forma report for the next 12-month
period should supplement the interim report.
B. The seasonal nature should be disclosed but no other reports should accompany the interim
report.
C. The seasonal nature should be disclosed, and a supplemental report for the 12-month
period ended at the interim date should supplement the interim report.
D. The financial statements should be adjusted to reflect the assumption that no seasonal
revenues could be earned.
E. Seasonal revenues have no particular reporting requirement.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.
Learning Objective: 08-07 List the minimum disclosure requirements for interim financial reports.

69. Which of the following are required to be disclosed in interim reports?


A. Cash flows from investing activities.
B. Change in cash.
C. Total current liabilities.
D. Total assets.
E. Gross revenues.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-07 List the minimum disclosure requirements for interim financial reports.

8-72

Chapter 08 - Segment and Interim Reporting

70. All of the following are required to be reported in interim financial statements for a
material operating segment except:
A. Segment assets.
B. Segment revenues from external customers.
C. Intersegment revenues.
D. Segment profit or loss.
E. Reconciliation of segment profit or loss to total income before taxes.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-07 List the minimum disclosure requirements for interim financial reports.

71. What is the appropriate treatment in an interim financial report for inventory that has
market value below cost?
A. The loss should always be recorded in the interim period in which market value drops
below cost.
B. The loss should be recorded in the interim period in which market value drops below cost
if the loss is considered temporary.
C. The loss should be recorded in the interim period in which market value drops below cost
if the loss is considered permanent.
D. The loss should be ignored for interim reporting purposes.
E. There is no loss to report.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-73

Chapter 08 - Segment and Interim Reporting

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

73. What is the appropriate treatment in an interim financial report for a LIFO liquidation?
A. The LIFO liquidation is always ignored for interim reporting.
B. The LIFO liquidation should always be reflected in gross profit on an interim income
statement.
C. The LIFO liquidation should always result in replacement cost valuation of ending
inventory on the interim balance sheet and the interim income statement.
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.
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.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-74

Chapter 08 - Segment and Interim Reporting

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-75

Chapter 08 - Segment and Interim Reporting

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

77. How should contingencies be reported in an interim report?


A. Disclosed the same way as they are disclosed in annual reports.
B. Disclosed in the interim period discovered, and ignored in all future periods.
C. Recorded as gains or losses as incurred.
D. Recorded as gains or losses only if material.
E. Ignored.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-07 List the minimum disclosure requirements for interim financial reports.

Provo, Inc. has an estimated annual tax rate of 35 percent in the first quarter of 2011. Pretax
income for the first quarter was $300,000. At the end of the second quarter of 2011, 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-oftax presentation.

8-76

Chapter 08 - Segment and Interim Reporting

78. How much income tax expense is recognized in the first quarter of 2011?
A. $0.
B. $26,250.
C. $96,000.
D. $105,000.
E. $112,000.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

79. How much income tax expense is recognized in the second quarter of 2011?
A. $103,000.
B. $104,000.
C. $112,000.
D. $122,500.
E. $208,000.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

Baker Corporation changed from the LIFO method to the FIFO method for inventory
valuation during 2011. 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:

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Chapter 08 - Segment and Interim Reporting

80. Assuming Baker makes the change in the first quarter of 2011, how much is reported as
net income for the first quarter of 2011?
A. $492,000.
B. $494,800.
C. $500,000.
D. $505,200.
E. $527,950.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

81. Assuming Baker makes the change in the first quarter of 2011, compute net income per
common share.
A. $4.92.
B. $4.95.
C. $5.00.
D. $5.05.
E. $5.28.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-78

Chapter 08 - Segment and Interim Reporting

82. Assuming Baker makes the change in the first quarter of 2011, how much is reported as
net income for the first quarter of 2010?
A. $300,000.
B. $322,750.
C. $335,000.
D. $265,000.
E. $277,250.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

83. Assuming Baker makes the change in the first quarter of 2011 and that $400,000 net
income is earned during the second quarter, how much is reported as net income for the
second quarter of 2011?
A. $400,000.
B. $405,200.
C. $427,950.
D. $894,850.
E. $905,200.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-79

Chapter 08 - Segment and Interim Reporting

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.
B. No fourth-quarter report is required.
C. No company may publish a fourth-quarter report.
D. The SEC requires selected quarterly financial data to be reported separately as a fourthquarter report.
E. When fourth-quarter financial statements are provided, special accounting items should be
disclosed in the annual financial statements.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-07 List the minimum disclosure requirements for interim financial reports.

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-08 Recognize differences between U.S. GAAP and IFRS in segment and interim reporting.

8-80

Chapter 08 - Segment and Interim Reporting

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?
A. IFRS and U.S. GAAP do not each require disclosure of segment liabilities.
B. IFRS and U.S. GAAP both require disclosure of intangible assets attributable to geographic
segments.
C. According to IFRS, operating segments can be based on products and services.
D. According to IFRS, operating segments can be based on geographic areas.
E. IFRS and U.S. GAAP both require disclosure of total assets.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-08 Recognize differences between U.S. GAAP and IFRS in segment and interim reporting.

Essay Questions

87. What is the major objective of segment reporting?


According to U.S. GAAP, the objective of segment reporting is to provide information to help
users of financial statements:
(a.) better understand the enterprise's performance,
(b.) better assess its prospects for future net cash flows, and
(c.) make more informed judgments about the enterprise as a whole.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-01 Understand how an enterprise determines its operating segments and the factors that influence this
determination.

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Chapter 08 - Segment and Interim Reporting

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


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.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 08-01 Understand how an enterprise determines its operating segments and the factors that influence this
determination.

89. Why are quarterly financial statements required to be published for publicly traded
companies in the U.S.?
Publicly traded U.S. companies must publish quarterly reports to provide investors and
creditors with relevant information on a more timely basis than is provided by an annual
report.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Easy
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

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Chapter 08 - Segment and Interim Reporting

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

93. What approach is used, according to U.S. GAAP, for determination of how a business is
divided into segments?
The management approach for segment determination is used.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-01 Understand how an enterprise determines its operating segments and the factors that influence this
determination.

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Chapter 08 - Segment and Interim Reporting

94. According to U.S. GAAP, what general information about an operating segment needs to
be disclosed?
The general information about an operating segment that needs to be disclosed per U.S.
GAAP includes:
(1.) Factors used to identify operating segments.
(2.) Types of products and services from which each operating segment derives its revenues.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-03 List the basic disclosure requirements for operating segments.

95. According to U.S. GAAP, how should common costs be allocated to individual segments
to determine segment profit or loss?
U.S. GAAP does not require common 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.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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Chapter 08 - Segment and Interim Reporting

96. List the five aggregation criteria that need to be considered by management in determining
whether business activities and environments are similar.
The five aggregation criteria are:
(1.) The nature of the products and services provided by each operating segment.
(2.) The nature of the production process.
(3.) The type or class of customer.
(4.) The distribution methods.
(5.) If applicable, the nature of the regulatory environment.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

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

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-85

Chapter 08 - Segment and Interim Reporting

98. According to U.S. GAAP, what revenues and expenses included in segment profit or loss
need to be disclosed?
The revenues and expenses included in segment profit or loss that need to be disclosed
include:
(1.) Revenues from external customers.
(2.) Revenues from transactions with other operating segments.
(3.) Interest revenue and interest expense (reported separately); net interest revenue may be
reported for finance segments if this measure is used internally for evaluation.
(4.) Depreciation, depletion, and amortization expense.
(5.) Other significant noncash items included in segment profit or loss.
(6.) Unusual items (discontinued operations and extraordinary items).
(7.) Income tax expense or benefit.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-03 List the basic disclosure requirements for operating segments.

99. What related items need to be disclosed in regard to total segment assets?
The related items in regard to total segment assets that need to be disclosed include:
(1.) Investment in equity method affiliates.
(2.) Expenditures for additions to long-lived assets.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-03 List the basic disclosure requirements for operating segments.

8-86

Chapter 08 - Segment and Interim Reporting

100. Which items of information are required to be included in interim reports for each
operating segment?
The items of information that are required to be included in interim reports for each operating
segment are:
(1.) Revenues from external customers.
(2.) Intersegment revenues.
(3.) Segment profit or loss.
(4.) Total assets, if there has been a material change from the last annual report.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-07 List the minimum disclosure requirements for interim financial reports.

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?
The two items of information are:
(1.) Revenues from external customers.
(2.) Long-lived assets.

AACSB: Reflective thinking


AICPA FN: Measurement
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 08-04 Determine when and what types of information must be disclosed for geographic areas.

8-87

Chapter 08 - Segment and Interim Reporting

102. Burnside Corp. is organized into four operating segments. The following segment
information was generated by the internal reporting system in 2011:

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.
Requirements (1) and (2)

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-88

Chapter 08 - Segment and Interim Reporting

Faru Co. identified five industry segments: (1) plastics, (2) metals, (3) lumber, (4) paper, and
(5) finance. Each of these segments had been consolidated appropriately by the company in
producing its annual financial statements. Information describing each segment is presented
below (in thousands).

103. Prepare the revenue test and determine which of these segments was separately
reportable.
Revenues include sales to outside parties, intersegment revenues transfers, and interest
income.

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-89

Chapter 08 - Segment and Interim Reporting

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-90

Chapter 08 - Segment and Interim Reporting

105. Prepare the asset test and determine which of these segments was separately reportable.
Assets include tangible assets and intangible assets.

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

8-91

Chapter 08 - Segment and Interim Reporting

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

Required:
(a.) Which operating segments are reportable under the revenue test?
(b.) What is the total amount of revenues in applying the revenues test?
(c.) Which operating segments are reportable under the profit or loss test?
(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?
(e.) Which operating segments are reportable under the asset test?
(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?
(g.) Which operating segments are reportable?
(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.

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Chapter 08 - Segment and Interim Reporting

h. 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.
8-93

Chapter 08 - Segment and Interim Reporting

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-02 Apply the three tests that are used to determine which operating segments are of significant size to warrant
separate disclosure.

On February 23, 2011, Cleveland, Inc., paid property taxes of $300,000 for the calendar year
2011.

107. How much of this expense should be included in Cleveland's net income for the quarter
ending March 31, 2011?
$75,000 [$300,000/4].

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Easy
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

108. Prepare the journal entry for the payment of property taxes on February 23, 2011.

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-94

Chapter 08 - Segment and Interim Reporting

Gregor, Inc., uses the LIFO cost-flow assumption to value inventory. Inventory for Gregor on
January 1, 2011 was 100 units at a LIFO cost of $25 per unit. During the first quarter of 2011,
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.

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, 2011?
$9,625 [(200 x $40) + (65 x $25)].

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

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, 2011?
$10,665 [(200 x $40) + (65 x $41)].

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-95

Chapter 08 - Segment and Interim Reporting

Harrison Company, Inc. began operations on January 1, 2010, and applied the LIFO method
for inventory valuation. On June 10, 2011, Harrison adopted the FIFO method of accounting
for inventory. Additional information is as follows:

The LIFO method was applied during the first quarter of 2011 and the FIFO method was
applied during the second quarter of 2011 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.

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

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-96

Chapter 08 - Segment and Interim Reporting

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,
2010 and 2011.
Net Income and Earnings per Share for 2nd Quarter 2011:

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Hard
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

The following information for Urbanski Corporation relates to the three months ending June
30, 2011:

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.

8-97

Chapter 08 - Segment and Interim Reporting

113. Compute cost of goods sold and gross profit for the quarter ending June 30, 2011.
Determination of Cost-of-Goods-Sold and Gross Profit

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

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.
Refer To: 08-114
Journal Entries to Record Sales and Cost-of-Goods-Sold

Excess of replacement cost over historical cost for beginning inventory liquidated:
[($18 - $10) x 5,000 units]

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-98

Chapter 08 - Segment and Interim Reporting

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.
Refer To: 08-114
Journal Entries to Record Sales and Cost-of-Goods-Sold

AACSB: Analytic
AICPA FN: Measurement
Bloom's: Analysis
Bloom's: Application
Difficulty: Medium
Learning Objective: 08-06 Understand and apply procedures used in interim reports to treat an interim period as an integral part of the
annual period.

8-99

Chapter 08 - Segment and Interim Reporting


Matching Questions

116. For each of the following situations, select the best answer concerning segment
disclosures of reportable segments.
1. Not required to be disclosed by
either an operating segment or a
geographical segment
Factors used to identify segments.
2. Required to be disclosed by an
operating segment, but not a
geographical segment
Revenues from external customers.
3. Required to be disclosed by an
Types of products and services
operating segment, but not a
from which each segment derives its
geographical segment
revenues.
4. Required to be disclosed by an
operating segment, but not a
geographical segment
Names of major customers.
5. Required to be disclosed by an
operating segment, but not a
Revenues from transactions with
geographical segment
other segments.
6. Not required to be disclosed by
either an operating segment or a
geographical segment
Interest revenue.
7. Required to be disclosed by both an
operating segment and a geographical
segment
Long-lived assets.
8. Required to be disclosed by an
operating segment, but not a
Discontinued operations and
geographical segment
extraordinary items, when applicable.
9. Required to be disclosed by both an
operating segment and a geographical
segment
Income tax expense or benefit.
10. Required to be disclosed by a
geographical segment, but not an
operating segment
Revenues for the domestic country.
11. Required to be disclosed by an
operating segment, but not a
geographical segment
Cash flow information
AACSB: Reflective thinking
AICPA FN: Measurement
Bloom's: Comprehension
Difficulty: Hard
Learning Objective: 08-03 List the basic disclosure requirements for operating segments.
Learning Objective: 08-04 Determine when and what types of information must be disclosed for geographic areas.

8-100

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