Chapter 8 Exam 3

The correct answer is B) Revenue test, profit or loss test, and asset test. This is because in order to determine which operating segments require separate disclosure, a company needs to consider the revenue generated by each segment, the profit or loss generated by each segment, and the assets employed by each segment. These tests help the company identify and evaluate the significance of each operating segment, and determine whether separate disclosure is necessary.

The factors used to allocate company-wide expenses are not required to be disclosed for each operating segment. The other options (A, B, C, and E) are all required to be disclosed for each operating segment according to accounting standards.

Vapor Corporation is not required to report research and development expenses for its fan products operating segment. This is because research and development expenses are typically reported separately from operating segments as they are considered to be part of the company's overall research and development activities rather than specific to a particular segment. Therefore, Vapor Corporation would report its research and development expenses as a separate line item in its financial statements, rather than attributing them to the fan products operating segment.

Segment C must be disclosed separately because it met all three tests for identifying reportable segments: the revenue test, the profit or loss test, and the asset test.

Feedback: (Total External Rev $11,200 + $5,600 + $8,400) + (Total I/E Sales $840 + $1,400 + $1,960) = $29,400
Combined Segment Revenues

The correct answer is E) 1, 2, 3, and 4. This means that all of the costs listed in options 1, 2, 3, and 4 require similar treatment to Property Tax Expense in an interim financial report. This suggests that all of these costs should be reported in a similar manner in the interim financial report, possibly as expenses or deductions from revenue.

An acceptable grouping for a U.S. company to provide information by geographic area would be to separate the United States from all other countries. This grouping allows for a clear distinction between the domestic market and international markets. It also provides a simple and straightforward categorization that is easy to understand and analyze.

In an interim financial report, the disclosure of cash flow information is not required. Interim financial reports are prepared for a shorter period of time, such as a quarter or a half-year, and are intended to provide timely information to users. While sales or gross revenues, provision for income taxes, changes in accounting principles, and seasonal revenues and expenses are all important disclosures in an interim financial report, cash flow information is not specifically required. Cash flow information is typically provided in annual financial statements.

Feedback: Consolidated Revenue $1,200,000 + Upstream I/E Sales $180,000 + Downstream I/E Sales $60,000 =
$1,440,000 × 10% = $144,000

Feedback: Total Profitable Segments Amount = $1,428,000 × 10% = $142,800 Segment Profit or Loss Threshold

Feedback: Total External Sales Revenue $172,200 + $113,400 + $133,000 + $107,800 = $526,400 × 10% = $52,640

Generally accepted accounting principles require a U.S. corporation to disclose revenues from external customers, unusual items, depreciation expense, and intersegment revenues for each operating segment. However, cost of goods sold is not required to be disclosed at the operating segment level.

The correct answer is C) The segments may sell different products, but they have a similar economic environment and similar business activities. This condition would be sufficient to allow a company to combine two operating segments for purposes of testing because it indicates that the segments operate in a similar manner and are subject to similar economic factors. This would make it easier for the company to analyze and assess the performance and financial results of the combined segments.

The correct answer is D) In determining reportable segments, three tests are applied and only one must be met. This means that in order for a segment to be considered reportable, it must meet at least one of the three tests. This indicates that there are multiple criteria that need to be evaluated in determining reportable segments, and meeting just one of these criteria is sufficient for a segment to be classified as reportable.

Interim reports for each operating segment are required to include information about revenues from external customers (I), segment profit or loss (II), reconciliation of segment profit or loss to the enterprise's total income before taxes (III), and intersegment revenues (IV). This means that all of the given options (I, II, III, and IV) are required to be included in the interim reports for each operating segment.

           $45,850,000 × 10% = $4,585,000

The correct answer is A) Factors used to allocate company-wide pension expense. This is because the disclosure of factors used to allocate company-wide pension expense is not required for each operating segment. The other options, B) Revenues from transactions with other operating segments, C) Interest revenue and interest expense, D) Depreciation, depletion, and amortization expense, and E) Revenues from external customers, are all required to be disclosed for each operating segment.

The criterion for determining whether an operating segment is separately reportable is if its assets are 10 percent or more of the combined segment assets. This means that if the assets of a specific operating segment make up a significant portion of the total assets of all operating segments combined, it should be separately reported. This criterion helps identify operating segments that have a significant impact on the overall financial performance and position of the entity.

The correct answer is B) I and III only. This is because the first statement states that an operating segment must have a segment manager who is directly accountable for its financial performance, which is a valid criterion for identifying operating segments. The third statement states that if there are segment managers for multiple overlapping sets of organizational units, the nature of the business activities must be considered, which is another valid criterion for identifying operating segments. The second statement, however, is incorrect because just having multiple sets of organizational units does not automatically make each unit an operating segment unless there are segment managers held responsible for their financial performance.

A geographic segment must disclose revenues from external customers according to U.S. GAAP. This is because the disclosure of revenues from external customers provides information about the segment's performance and its ability to generate revenue from customers outside of the company. This information is important for investors and other stakeholders in evaluating the segment's financial performance and potential growth opportunities.

According to U.S. GAAP, a U.S. company would group the information by geographic area based on specific countries. Option D includes the specific countries of United States, Canada, Mexico, and Germany, which aligns with the acceptable grouping criteria. Options A, B, C, and E either include regions instead of specific countries or include countries that are not relevant to the geographic area grouping.

The correct answer is E) Discontinued operations. The discrete approach is used to report significant events or transactions that are unusual or infrequent in nature and are not expected to recur in the future. Discontinued operations refer to the disposal or planned disposal of a component of an entity, such as a segment or a subsidiary. It is reported separately in the financial statements to provide users with information about the financial effects of the discontinued operations on the entity's overall performance.

Revenues should be recognized in interim periods in the same way as they are recognized on an annual basis. This means that revenues should be recognized when they are earned and realizable, regardless of when the cash is received. This is in line with the accrual accounting principle, which recognizes revenues when they are earned, rather than when the cash is received. By recognizing revenues in the same way on an annual basis and in interim periods, financial statements provide consistent and comparable information to users.

The correct answer is E) Liabilities. U.S. GAAP requires the disclosure of interest expense, intersegment sales, unusual items, and depletion as operating segment disclosures. However, the disclosure of liabilities is not specifically required as an operating segment disclosure under U.S. GAAP.

According to authoritative accounting literature, the disclosure of gross revenues is required in interim reports. This information provides stakeholders with a clear understanding of the company's revenue generation during the interim period. It helps in assessing the company's financial performance and comparing it with previous periods or industry benchmarks. Disclosing gross revenues also promotes transparency and accountability in financial reporting.

The correct answer is D) I and II only. This means that for all reportable operating segments, the financial statements must disclose the revenue from external customers and the total segment assets. Revenues from foreign customers identified by country are not required to be disclosed.

According to U.S. GAAP, an organizational unit can still be considered an operating segment even if all of its operating transactions are only with other segments of the organization. This means that option E, which states that an organizational unit cannot be an operating segment under these circumstances, is not true.

In interim financial reports using the integral approach, the bonus expense is reported. The integral approach combines both the parent and subsidiary financial statements into one comprehensive report. This approach includes all aspects of the company's financial performance, including expenses such as bonuses. Therefore, bonus expense would be included in the interim financial reports using the integral approach.

Management should consider various criteria in determining whether business activities and environments of an operating segment are similar. These criteria include the nature of the production process, the distribution methods, the nature of the regulatory environment (if applicable), and the type or class of customer. However, the geographical location of the operations is not a relevant factor in determining similarity between operating segments.

U.S. GAAP requires the disclosure of the operating segment reporting sales to a major customer. This means that companies must provide information about the specific segment of their business that is responsible for generating sales to the major customer. This information helps users of the financial statements understand the significance of the customer to the company's overall operations and financial performance. The identity of the customer, the geographic area of the customer, the specific products or services purchased, and the length of time the customer has been a customer may also be important information, but they are not specifically required to be disclosed by U.S. GAAP.

      $8,120,000 × 10% = $812,000

According to U.S. GAAP, segment information does not have to be in accordance with generally accepted accounting principles. This means that companies are not required to prepare segment information using the same accounting principles that they use for their consolidated financial statements. Instead, companies have the flexibility to use different accounting principles for segment reporting, as long as the information is reliable and relevant to users of the financial statements.

  417,000 + $23,000 + $7,000 + $33,000 = $480,000