Question 1

With regard to major customers, which of the following items is not true?

Accepted Answer

A)  If it qualifies, the federal government is considered a single major customer. 
B)  The total amount of the sales to each major customer must be disclosed. 
C)  The names of the major customers must be disclosed. 
D)  The identity of the segments making the sales must be disclosed.

Question 2

Good Time, Inc. is a worldwide manufacturer of toys and games. In accordance with generally accepted accounting principles, quarterly statements are prepared. At the end of the first quarter of 20X2, the following data have been collected from the financial records:
a.
Sales were $14,680,000.
b.
Expenses related directly to the sales were $10,600,000, of which $9,500,000 related to the cost of goods sold.
c.
Good Time, Inc. employs the LIFO method for inventory valuation and has liquidated a portion of its beginning inventory. The liquidation was in the amount of $600,000, which is included in the cost of goods sold of $9,500,000, and the cost to replace this inventory will be $1,400,000.
d.
Other transactions during the first quarter were as follows:
(1)
Research and development costs were incurred in the amount of $4,000,000 and are expected to benefit equally the next 3 years.
(2)
Advertising costs were $75,000, of which one-third related to the first-quarter sales.
(3)
There was a gain on the early extinguishment of debt in the amount of $1,115,000.
Assume that Good Time, Inc. had 500,000 shares of common stock outstanding throughout the first quarter.
Required:
In good form, present the quarterly income statement of Good Time, Inc. (assume an effective income tax rate of 40%).

Accepted Answer

The answer of Good Time, Inc. is a worldwide manufacturer...

Question 3

Scenario 12-1
Ansfield, Inc. has several potentially reportable segments. The following financial information has been determined for the current fiscal year:
 $\begin{array}{lr}
\text { Consolidated net income } & \$ 1,000,000 \
\text { Operating income before taxes } & 1,500,000 \
\text { Net operating income of all segments } & 1,350,000 \
\text { Total consolidated revenue } & 8,000,000 \
\text { Total revenue of all segments, } & \
\text { excluding intersegments sales } & 7,000,000 \
\text { Total intersegment sales } & 1,200,000 \
\text { Consolidated total assets } & 50,000,000 \
\text { Total assets of all segments } & 45,000,000
\end{array}$
-Refer to Scenario 12-1. The minimum amount of profit or loss a segment must have to qualify as reported is ____.

Accepted Answer

A)  $100,000 
B)  $135,000 
C)  $150,000 
D)  The answer cannot be determined from the information given.

Question 4

Which of the following best describes the treatment given a change in accounting principles made during the second quarter?

Accepted Answer

A)  The cumulative effect should be recognized in the quarter in which the decision to change is made. 
B)  Regardless of the quarter of change, the recognition is deferred until year end. 
C)  All prior interim periods are retrospectively restated. 
D)  Interim periods prior to the period of change are not restated.

Question 5

Which of the following items should be disclosed with interim data?

Accepted Answer

A)  basic and diluted earnings per share 
B)  contingent items 
C)  changes in accounting estimates 
D)  all of the above

Question 6

In determining whether a segment should be reported, a profit and loss test can be used. The test selects segments for reporting by:

Accepted Answer

A)  only including profitable segments. 
B)  comparing the absolute value of a segment's profit or loss to 10% of all segments cumulative profit or cumulative loss, whichever is higher. 
C)  comparing the absolute value of a segment's profit or loss to 10% of all segments combined profits and losses. 
D)  comparing the profit or loss of a segment to 10% of all segment external revenue.

Question 7

East Company, a highly diversified corporation, reports the results of operations quarterly. At the beginning of the third quarter, management decided to discontinue its recreational division. At this time, a formal plan was authorized, calling for disposal by year end. Results for the current year, excluding taxes, are as follows:
 $$\begin{array} { l c c } 
\text { Quarter } & \begin{array} { c } 
\text { Continuing } \
\text { Operations }
\end{array} & \begin{array} { c } 
\text { Discontinued } \
\text { Segment }
\end{array} \
\hline \text { First } & \$ 33,000 & \
\text { Second } & 40,200 & \
\text { Third } & 62,000 & \$ ( 6,500 ) \
\text { Fourth } & 71,500 & 1,200
\end{array}$$ The following additional information was provided: 
a.
The first two quarters include results of operations of the discontinued segment. The segment reported first and second quarter pretax losses of $8,000 and $12,000, respectively.
b.
The estimated annual income tax rate in the first and second quarters was 35%. Because of the decision to discontinue, the revised annual effective tax rate was determined to be 40%.
Required:
For each quarter, present the results of operations and the related tax expense or tax benefit. Where applicable, include the original and restated amounts in the presentation.

Accepted Answer

The answer of East Company, a highly diversified corporation, reports...

Question 8

A corporation made up of an automobile manufacturer, a plastics maker, a spark plug manufacturer, a steel mill, and a battery maker is an example of a

Accepted Answer

A)  horizontally-integrated company. 
B)  vertically-integrated company. 
C)  diversified company. 
D)  conglomerate.

Question 9

It is possible for segments to qualify as reportable, but not represent a material portion of the enterprise. What test is applied to ensure the segments reported represent a significant portion of enterprise activity?

Accepted Answer

A)  Combined external segment revenues for reportable segments exceed 75% of internal and external segment revenues. 
B)  Total internal and external segment revenue exceeds 75% of total consolidated revenue. 
C)  Total external segment revenue of the reportable segments exceeds 75% of consolidated revenue. 
D)  Total segment assets of the reportable segments exceeds 75% of total consolidated assets.

Question 10

Scott Inc. expects to have financial income of $375,000 for 20X1 and estimates annual tax credits of $22,500. Included in Scott's income is interest income on municipal securities totaling $45,000 and meals and entertainment expenses of $62,500 of which 50% are not deductible under current tax code. Assume that the graduated tax rate schedule is as follows:
  Required:
Determine the tax expense for the first quarter, assuming that taxable income is $85,000.

Accepted Answer

The answer of Scott Inc. expects to have financial income...

Question 11

Explain the difference in the independent and integral viewpoints of accounting for interim periods. Which method best describes the accepted accounting practice for interim financial reporting?

Accepted Answer

The answer of Explain the difference in the independent and...

Question 12

When a company makes a second quarter decision to discontinue a segment, the first quarter tax expense:

Accepted Answer

A)  Results are not restated. 
B)  is split between the tax expense calculated on restated quarter one income from continuing operations and the discontinued segment by subtracting the tax expenses calculated on the restated first quarter income from the original tax expense calculated for the first quarter, before the decision was made. 
C)  is used to determine the incremental tax effect. 
D)  is used to calculate the effective tax rate for the discontinued segment.

Question 13

Scenario 12-1
Ansfield, Inc. has several potentially reportable segments. The following financial information has been determined for the current fiscal year:
 $\begin{array}{lr}
\text { Consolidated net income } & \$ 1,000,000 \
\text { Operating income before taxes } & 1,500,000 \
\text { Net operating income of all segments } & 1,350,000 \
\text { Total consolidated revenue } & 8,000,000 \
\text { Total revenue of all segments, } & \
\text { excluding intersegments sales } & 7,000,000 \
\text { Total intersegment sales } & 1,200,000 \
\text { Consolidated total assets } & 50,000,000 \
\text { Total assets of all segments } & 45,000,000
\end{array}$
-Refer to Scenario 12-1. The minimum amount of revenues a segment must have to qualify as reportable is ____.

Accepted Answer

A)  $700,000 
B)  $800,000 
C)  $820,000 
D)  The answer cannot be determined from the information given.

Question 14

In determining if two operating segments may be combined into one, which of the following factors should be considered?

Accepted Answer

A)  similarities regarding profit margins 
B)  whether the nature of the products and services is similar 
C)  whether there is a similar amount of intracompany sales 
D)  whether there is a similar number of employees

Question 15

Which of the following statements is NOT true concerning the determination of the effective tax rate to be used for interim reporting?

Accepted Answer

A)  Tax rate changes should not be accounted for retroactively. 
B)  The effective tax rate for the entire year should be estimated. 
C)  The effective tax rate should reflect anticipated tax credits. 
D)  The estimated tax rate should reflect extraordinary items.

Question 16

Santas Corporation is a diversified firm with operations in the United States, Canada, Chile, Spain, and France, each of which qualifies as a geographic segment. Data with respect to those segments follows:
  Required:
Determine which of the Santas segments would be reportable segments, and explain why.

Accepted Answer

The answer of Santas Corporation is a diversified firm with...

Question 17

Adam Enterprise includes seven industry segments. Operating profits (losses) relating to those segments are:
 $\begin{array}{lc}&\text { Sperating } \
\text { Segment } & \text { Profit (Loss) }\
1 & \$ 100,000 \
2 & 500,000 \
3 & 400,000 \
4 & (295,000) \
5 & (600,000) \
6 & (100,000) \
7 & (105,000)
\end{array}$ Required:
Based only on the above operating profit(loss) information, which of Adam's segments would be reported separately?

Accepted Answer

The answer of Adam Enterprise includes seven industry segments. Operating...

Question 18

If a company is utilizing LIFO inventory costing, what might be the effect on the calculation of Cost of Goods sold in an interim financial statement?

Accepted Answer

A)  cost of goods sold is calculated on a historical cost basis only 
B)  the interim cost of goods sold includes the replacement cost of temporarily liquidated inventory 
C)  cost of goods sold is not adjusted for any changes due to liquidation of LIFO inventory 
D)  any of the effects of liquidation are deferred until year end

Question 19

Abbott Inc. began the year with 750 units of inventory valued at $20 each under LIFO. During the first quarter, 300 units were purchased at $25 each and another 250 units were purchased at $28 each. Assume that 200 units are on hand at the end of the first quarter and that the current replacement cost is $30 per unit.
Required:
If Abbott plans to have 500 units on hand at year end, determine the cost of goods sold for the first quarter.

Accepted Answer

The answer of Abbott Inc. began the year with 750...

Question 20

Scenario 12-1
Ansfield, Inc. has several potentially reportable segments. The following financial information has been determined for the current fiscal year:
 $\begin{array}{lr}
\text { Consolidated net income } & \$ 1,000,000 \
\text { Operating income before taxes } & 1,500,000 \
\text { Net operating income of all segments } & 1,350,000 \
\text { Total consolidated revenue } & 8,000,000 \
\text { Total revenue of all segments, } & \
\text { excluding intersegments sales } & 7,000,000 \
\text { Total intersegment sales } & 1,200,000 \
\text { Consolidated total assets } & 50,000,000 \
\text { Total assets of all segments } & 45,000,000
\end{array}$
-Refer to Scenario 12-1. The minimum amount of assets a segment must have to qualify as reportable is ____.

Accepted Answer

A)  $4,500,000 
B)  $5,000,000 
C)  $37,500,000 
D)  The answer cannot be determined from the information given.

Exam 12: Interim Reporting and Disclosures About Segments of an Enterprise