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Advanced Accounting Study Set 11
Exam 12: Interim Reporting and Disclosures About Segments of an Enterprise
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Question 21
Multiple Choice
With regard to major customers, which of the following items is not true?
Question 22
Essay
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%).
Question 23
Multiple Choice
Scenario 12-1 Ansfield, Inc. has several potentially reportable segments. The following financial information has been determined for the current fiscal year:
Consolidated net income
$
1
,
000
,
000
Operating income before taxes
1
,
500
,
000
Net operating income of all segments
1
,
350
,
000
Total consolidated revenue
8
,
000
,
000
Total revenue of all segments,
excluding intersegments sales
7
,
000
,
000
Total intersegment sales
1
,
200
,
000
Consolidated total assets
50
,
000
,
000
Total assets of all segments
45
,
000
,
000
\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}
Consolidated net income
Operating income before taxes
Net operating income of all segments
Total consolidated revenue
Total revenue of all segments,
excluding intersegments sales
Total intersegment sales
Consolidated total assets
Total assets of all segments
$1
,
000
,
000
1
,
500
,
000
1
,
350
,
000
8
,
000
,
000
7
,
000
,
000
1
,
200
,
000
50
,
000
,
000
45
,
000
,
000
-Refer to Scenario 12-1. The minimum amount of profit or loss a segment must have to qualify as reported is ____.
Question 24
Multiple Choice
Which of the following best describes the treatment given a change in accounting principles made during the second quarter?
Question 25
Multiple Choice
Which of the following items should be disclosed with interim data?
Question 26
Multiple Choice
In determining whether a segment should be reported, a profit and loss test can be used. The test selects segments for reporting by:
Question 27
Essay
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:
Quarter
Continuing
Operations
Discontinued
Segment
First
$
33
,
000
Second
40
,
200
Third
62
,
000
$
(
6
,
500
)
Fourth
71
,
500
1
,
200
\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}
Quarter
First
Second
Third
Fourth
Continuing
Operations
$33
,
000
40
,
200
62
,
000
71
,
500
Discontinued
Segment
$
(
6
,
500
)
1
,
200
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.
Question 28
Multiple Choice
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
Question 29
Multiple Choice
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?
Question 30
Essay
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.
Question 31
Essay
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?