Package Title: Assessment Questions

Course Title: Advanced Accounting, 6e

Chapter Number: 14

Question Type: Multiple Choice

1) A component of an enterprise that may earn revenues and incur expenses, and about which management
evaluates separate financial information in deciding how to allocate resources and assess performance is
a(n):

a) identifiable segment.
b) operating segment.
c) reportable segment.
d) industry segment.

Answer: b

Question Title: Assessment (Multiple Choice) Question 01

Difficulty: Easy
Learning Objective: 3 Determine an operating segment.
Section Reference: 14.2

2) An entity is permitted to aggregate operating segments if the segments are similar regarding the:

a) nature of the production processes.

b) types or class of customers.
c) methods used to distribute products or provide services.
d) all of these.

Answer: d

Question Title: Assessment (Multiple Choice) Question 02

Difficulty: Easy
Learning Objective: 3 Determine an operating segment.
Section Reference: 14.2

3) Which of the following is NOT a segment asset of an operating segment?

a) Assets used jointly by more than one segment.

b) Assets directly associated with a segment.
c) Assets maintained for general corporate purposes.
d) Assets used exclusively by a segment.

Answer: c

Question Title: Assessment (Multiple Choice) Question 03

Difficulty: Easy
Learning Objective: 3 Determine an operating segment.
Section Reference: 14.3

4) SFAS No. 131 requires the disclosure of information on an enterprise's operations in different industries
for:

a) each annual period presented.

b) each interim period presented.
c) the current period only.
d) each annual period presented and each interim period presented.

Answer: d

Question Title: Assessment (Multiple Choice) Question 04

Difficulty: Easy
Learning Objective: 2 Describe the basic requirements of public companies in reporting segmental data.
Section Reference: 14.2

5) Which of the following is NOT required to be disclosed by SFAS No. 131?

a) Information concerning the enterprise's products.

b) Information related to an enterprise's foreign operations.
c) Information related to an enterprise's major suppliers.
d) All of theses are required disclosures.

Answer: c

Question Title: Assessment (Multiple Choice) Question 05

Difficulty: Medium
Learning Objective: 2 Describe the basic requirements of public companies in reporting segmental data.
Section Reference: 14.2

6) To determine whether a substantial portion of a firm's operations are explained by its segment
information, the combined revenue from sales to unaffiliated customers of all reportable segments must
constitute at least:

a) 10% of the combined revenue of all operating segments.

b) 75% of the combined revenue of all operating segments.
c) 10% of the combined revenue from sales to unaffiliated customers of all operating segments.
d) 75% of the combined revenue from sales to unaffiliated customers of all operating segments.

Answer: d

Question Title: Assessment (Multiple Choice) Question 06

Difficulty: Medium
Learning Objective: 5 Identify the information to be presented for each reportable segment.
Section Reference: 14.2
7) A segment is considered to be significant if its:

a) reported profit is at least 10% of the combined profit of all operating segments.
b) reported profit (loss) is at least 10% of the combined reported profit of all operating segments not
reporting a loss.
c) reported profit (loss) is at least 10% of the combined reported loss of all operating segments that reported
a loss.
d) reported profit (loss) is at least 10% of the combined reported profit of all operating segments not
reporting a loss; and reported profit (loss) is at least 10% of the combined reported loss of all operating
segments that reported a loss.

Answer: d

Question Title: Assessment (Multiple Choice) Question 07

Difficulty: Medium
Learning Objective: 3 Determine an operating segment.
Section Reference: 14.2

8) Which of the following disclosures is NOT required to be presented for a firm's reportable segments?

a) Information about segment assets

b) Information about the bases for measurement
c) Reconciliation of segment amounts and consolidated amounts for revenue, profit or loss, assets, and other
significant items.
d) All of these must be presented.

Answer: d

Question Title: Assessment (Multiple Choice) Question 08

Difficulty: Medium
Learning Objective: 5 Identify the information to be presented for each reportable segment.
Section Reference: 14.2

9) Current authoritative pronouncements require the disclosure of segment information when certain criteria
are met. Which of the following reflects the type of firm and type of financial statement for which this
disclosure is required?

a) Annual financial statements for publicly held companies.

b) Annual financial statements for both publicly held and nonpublicly held companies.
c) Annual and interim financial statements for publicly held companies.
d) Annual and interim financial statements for both publicly held and nonpublicly held companies.

Answer: c

Question Title: Assessment (Multiple Choice) Question 09

Difficulty: Easy
Learning Objective: 2 Describe the basic requirements of public companies in reporting segmental data.
Section Reference: 14.2
10) An enterprise determines that it must report segment data in annual reports for the year ended December
31, 2017. Which of the following would NOT be an acceptable way of reporting segment information?

a) Within the body of the financial statements, with appropriate explanatory disclosures in the footnotes
b) Entirely in the footnotes to the financial statements.
c) As a special report issued separately from the financial statements.
d) In a separate schedule that is included as an integral part of the financial statements.

Answer: c

Question Title: Assessment (Multiple Choice) Question 10

Difficulty: Easy
Learning Objective: 5 Identify the information to be presented for each reportable segment.
Section Reference: 14.2

11) Selected data for a segment of a business enterprise are to be separately reported in accordance with
SFAS No. 131 when the revenues of the segment is 10% or more of the combined:

a) net income of all segments reporting profits.

b) external and internal revenue of all reportable segments.
c) external revenue of all reportable segments.
d) revenues of all segments reporting profits.

Answer: b

Question Title: Assessment (Multiple Choice) Question 11

Difficulty: Medium
Learning Objective: 4 Define a reportable segment., 5 Identify the information to be presented for each
reportable segment.
Section Reference: 14.2

12) Long Corporation's revenues for the year ended December 31, 2017, were as follows:

Consolidated revenue per income statement $800,000

Intersegment sales 105,000
Intersegment transfers 35,000
Combined revenues of all operating segments $940,000

Long has a reportable segment if that segment's revenues exceed

a) $80,000.
b) $90,500.
c) $94,000.
d) $14,000.

Answer: c
Question Title: Assessment (Multiple Choice) Question 12
Difficulty: Medium
Learning Objective: 4 Define a reportable segment.
Section Reference: 14.2

13) Determine the amount of revenue for each of the three segments that would be used to identify the
reportable industry segments in accordance with the revenues test specified by SFAS 131.

Revenue test (dollars in thousands)

Wholesale Retail Finance
Segment Segment Segment
Sales to unaffiliated customers $3,600 $1,500 $-0-
Sales – intersegment 400 240 -0-
Loan interest income – intersegment -0- 120 900
Loan interest income – unaffiliated -0- 240 80
Income from equity method investees -0- 280 -0-

a) Wholesale, $3,600; Retail, $1,500; Finance, $ -0-

b) Wholesale, 4,000; Retail, 1,740; Finance, -0-
c) Wholesale, 4,000; Retail, 1,980; Finance, 980
d) Wholesale, 4,000; Retail, 2,380; Finance, 980

Answer: c

Question Title: Assessment (Multiple Choice) Question 13

Difficulty: Medium
Learning Objective: 4 Define a reportable segment.
Section Reference: 14.2

14) Which of the following is NOT part of the information about foreign operations that is required to be
disclosed?

a) Revenues from external customers

b) Operating profit or loss, net income, or some other common measure of profitability
c) Capital expenditures
d) Long-lived assets

Answer: c

Question Title: Assessment (Multiple Choice) Question 14

Difficulty: Medium
Learning Objective: 6 Explain when and what types of geographic data must be reported.
Section Reference: 14.2

15) An entity is permitted to aggregate operating segments that have similar economic characteristics under
certain circumstances. Which of the following circumstances would allow aggregation of Entity A into
Segment B?
a) Entity A is expected to be included in Segment Z, a new segment, in future periods.
b) Entity A was spun off from Entity C and is now owned directly by the parent entity.
c) Entity A has recently filed bankruptcy and will be liquidated.
d) Segment B consists of retail and wholesale operations and Entity A was primarily a retail establishment
but is now engaged primarily in rendering services to the parent entity.

Answer: b

Question Title: Assessment (Multiple Choice) Question 15

Difficulty: Hard
Learning Objective: 5 Identify the information to be presented for each reportable segment.
Section Reference: 14.2

16) Pale Company has four manufacturing divisions, each of which has been determined to be a reportable
segment. Common operating costs are appropriately allocated on the basis of each division's sales in relation
to Pale’s aggregate sales. Pale’s Delta division accounted for 40% of Pale's total sales in 2017. For the year
ended December 31, 2017, Delta had sales of $5,000,000 and traceable costs of $3,600,000. In 2017, Pale
incurred operating costs of $350,000 that were not directly traceable to any of the divisions. In addition, Pale
incurred interest expense of $360,000 in 2017. In reporting supplementary segment information, how much
should be shown as Delta's operating profit for 2017?

a) $1,400,000
b) $1,256,000
c) $1,260,000
d) $1,116,000

Answer: c

Question Title: Assessment (Multiple Choice) Question 16

Difficulty: Hard
Learning Objective: 5 Identify the information to be presented for each reportable segment.
Section Reference: 14.2

17) For external reporting purposes, it is appropriate to use estimated gross profit rates to determine the
ending inventory value for:

a) Interim Reporting, No; Annual Reporting, No

b) Interim Reporting, No; Annual Reporting, Yes
c) Interim Reporting, Yes; Annual Reporting, No
d) Interim Reporting, Yes; Annual Reporting, Yes

Answer: c

Question Title: Assessment (Multiple Choice) Question 17

Difficulty: Easy
Learning Objective: 5 Identify the information to be presented for each reportable segment.
Section Reference: 14.4
18) Inventory losses from market declines that are expected to be temporary:

a) should be recognized in the interim period in which the decline occurs.

b) should be recognized in the last (fourth) quarter of the year in which the decline occurs.
c) should not be recognized.
d) none of these.

Answer: c

Question Title: Assessment (Multiple Choice) Question 18

Difficulty: Easy
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

19) Gains and losses that arise in an interim period should be:

a) recognized in the interim period in which they arise.

b) recognized in the last quarter of the year in which they arise.
c) allocated equally among the remaining interim periods.
d) deferred and included only in the annual income statement.

Answer: a

Question Title: Assessment (Multiple Choice) Question 19

Difficulty: Easy
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

20) If a cumulative effect type accounting change is made during the first interim period of a year:

a) no cumulative effect of the change should be included in net income of the period of change.
b) the cumulative effect of the change on retained earnings at the beginning of the year should be included in
net income of the first interim period.
c) the cumulative effect of the change should be allocated to the current and remaining interim periods of the
year.
d) none of these.

Answer: b

Question Title: Assessment (Multiple Choice) Question 20

Difficulty: Easy
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

21) Which of the following does NOT have to be disclosed in interim reports?
a) Seasonal costs or expenses.
b) Significant changes in estimates.
c) Disposal of a segment of a business.
d) All of these must be disclosed.

Answer: d

Question Title: Assessment (Multiple Choice) Question 21

Difficulty: Easy
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

22) For interim financial reporting, the effective tax rate should reflect:

a) Anticipated Tax Credits, Yes; Extraordinary Items, Yes

b) Anticipated Tax Credits, Yes; Extraordinary Items, No
c) Anticipated Tax Credits, No; Extraordinary Items, Yes
d) Anticipated Tax Credits, No; Extraordinary Items, No

Answer: b

Question Title: Assessment (Multiple Choice) Question 22

Difficulty: Easy
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

23) Companies using the LIFO method may encounter a liquidation of base period inventories at an interim
date that is expected to be replaced by the end of the year. In these cases, cost of goods sold should be
charged with the:

a) cost of the most recent purchases.

b) average cost of the liquidated LIFO base.
c) expected replacement cost of the liquidated LIFO base.
d) none of these.

Answer: c

Question Title: Assessment (Multiple Choice) Question 23

Difficulty: Medium
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

24) In considering interim financial reporting, how did the Accounting Principles Board conclude that each
reporting should be viewed?
a) As a "special" type of reporting that need not follow generally accepted accounting principles.
b) As useful only if activity is evenly spread throughout the year so that estimates are unnecessary.
c) As reporting for a basic accounting period.
d) As reporting for an integral part of an annual period.

Answer: d

Question Title: Assessment (Multiple Choice) Question 24

Difficulty: Easy
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

25) When a company issues interim financial statements, extraordinary items should be:

a) allocated to the current and remaining interim periods of the current year on a pro rata basis.
b) deferred and included only in the annual income statement.
c) included in the determination of net income in the interim period in which they occur.
d) charged or credited directly to retained earnings so that comparisons of interim results of operations will
not be distorted.

Answer: c

Question Title: Assessment (Multiple Choice) Question 25

Difficulty: Easy
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

26) If annual major repairs made in the first quarter and paid for in the second quarter clearly benefit the
entire year, when should they be expensed?

a) An allocated portion in each of the last three quarters

b) An allocated portion in each quarter of the year
c) In full in the first quarter
d) In full in the second quarter

Answer: b

Question Title: Assessment (Multiple Choice) Question 26

Difficulty: Easy
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

27) During the second quarter of 2017, Clearwater Company sold a piece of equipment at a gain of $90,000.
What portion of the gain should Clearwater report in its income statement for the second quarter of 2017?

a) $90,000
b) $45,000
c) $30,000
d) $ -0-

Answer: a

Question Title: Assessment (Multiple Choice) Question 27

Difficulty: Easy
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

28) In January 2017, Cain Company paid $200,000 in property taxes on its plant for the calendar year 2017.
Also in January 2017, Cain estimated that its year-end bonuses to executives for 2017 would be $800,000.
What is the amount of expenses related to these two items that should be reflected in Cain's quarterly
income statement for the three months ended June 30, 2017 (second quarter)?

a) $ -0-
b) $250,000
c) $ 50,000
d) $200,000

Answer: b

Question Title: Assessment (Multiple Choice) Question 28

Difficulty: Easy
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

29) For interim financial reporting, a company's income tax provision for the second quarter of 2017 should
be determined using the:

a) statutory tax rate for 2017.

b) effective tax rate expected to be applicable for the full year of 2017 as estimated at the end of the first
quarter of 2017.
c) effective tax rate expected to be applicable for the full year of 2017 as estimated at the end of the second
quarter of 2017.
d) effective tax rate expected to be applicable for the second quarter of 2017.

Answer: c

Question Title: Assessment (Multiple Choice) Question 29

Difficulty: Easy
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

30) Which of the following reporting practices is permissible for interim financial reporting?
a) Use of the gross profit method for interim inventory pricing.
b) Use of the direct costing method for determining manufacturing inventories.
c) Deferral of unplanned variances under a standard cost system until year-end.
d) Deferral of inventory market declines until year-end.

Answer: a

Question Title: Assessment (Multiple Choice) Question 30

Difficulty: Easy
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

31) Which of the following statements most accurately describes interim period tax expense?

a) The best estimate of the annual tax rate times the ordinary income (loss) for the quarter.
b) The best estimate of the annual tax rate times income (loss) for the year to date less tax expense (benefit)
recognized in previous interim periods.
c) Average tax rate for each quarter, including the current quarter, times the current income (loss).
d) The previous year's actual effective tax rate times the current quarter's income.

Answer: b

Question Title: Assessment (Multiple Choice) Question 31

Difficulty: Medium
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

32) The computation of a company's third quarter provision for income taxes should be based upon
earnings:

a) for the quarter at an expected annual effective income tax rate.

b) for the quarter at the statutory rate.
c) to date at an expected annual effective income tax rate less prior quarters' provisions.
d) to date at the statutory rate less prior quarters' provisions.

Answer: c

Question Title: Assessment (Multiple Choice) Question 32

Difficulty: Medium
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

33) Bjork, a calendar year company, has the following income before income tax provision and estimated
effective annual income tax rates for the first three quarters of 2017:
 Income Before Estimated Effective
Income Tax Annual Tax Rate
Quarter Provision at the End of Quarter
First $120,000 25%
Second 160,000 25%
Third 200,000 30%

Bjork's income tax provision in its interim income statement for the third quarter should be

a) $74,000.
b) $60,000.
c) $50,000.
d) $144,000.

Answer: a

Question Title: Assessment (Multiple Choice) Question 33

Difficulty: Hard
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

34) An inventory loss from a market price decline occurred in the first quarter. The loss was not expected to
be restored in the fiscal year. However, in the third quarter the inventory had a market price recovery that
exceeded the market decline that occurred in the first quarter. For interim reporting, the dollar amount of net
inventory should:

a) decrease in the first quarter by the amount of the market price decline and increase in the third quarter by
the amount of the market price recovery.
b) decrease in the first quarter by the amount of the market price decline and increase in the third quarter by
the amount of the decrease in the first quarter.
c) not be affected in the first quarter and increase in the third quarter by the amount of the market price
recovery that exceeded the amount of the market price decline.
d) not be affected in either the first quarter or the third quarter.

Answer: b

Question Title: Assessment (Multiple Choice) Question 34

Difficulty: Medium
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

35) Advertising costs may be accrued or deferred to provide an appropriate expense in each period for:

a) Interim Reporting, Yes; Annual Reporting, No

b) Interim Reporting, Yes; Annual Reporting, Yes
c) Interim Reporting, No; Annual Reporting, No
d) Interim Reporting, No; Annual Reporting, Yes
Answer: b

Question Title: Assessment (Multiple Choice) Question 35

Difficulty: Medium
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4

Question Type: Essay

36) In SFAS No. 131, the FASB requires all public companies to report a variety of information for
reportable segments. Define a reportable segment and identify the information to be reported for each
reportable segment.

Answer: A reportable segment is a segment that has passed one of three 10% tests (combined revenues,
reported profit/loss and assets) or has been identified as being reportable through other criteria (i.e.
aggregation).

The information reported includes information about (a) segment operating profit/loss; (b) segment assets,
and (c) bases for measurement. In addition, a reconciliation of segment amounts to the consolidated amounts
for revenue, profit/loss, assets and other significant items is presented. Enterprisewide disclosures regarding
products or services, geographic areas, and major customers are also made.

Question Title: Assessment (Essay) Question 36

Difficulty: Medium
Learning Objective: 4 Define a reportable segment.
Section Reference: 14.2

37) Publicly owned companies are usually required to file some type of quarterly (interim) report as part of
the agreement with the stock exchanges that list their stock. Indicate two problems with interim reporting
and GAAP’s position on this reporting.

Answer: Problems associated with interim reporting include the seasonal nature of many industries’
operations that can cause wide fluctuations in revenues, expenses and net income from one interim period to
another. In addition, the short time period available to determine interim results and the added cost of
determining accurate figures for accruals and deferrals result in the use of a variety of estimation techniques,
some of which proved to be highly inaccurate.

GAAP (APB Opinion No. 28) supports the integral view for interim reporting. The APB stated that each
interim period should be viewed primarily as an integral part of an annual period.

Question Title: Assessment (Essay) Question 37

Difficulty: Medium
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the
issue.
Section Reference: 14.4
38) The following information is available for Pink Company for 2017:

a. In early April Pink made major repairs to its equipment at a cost of $90,000. These repairs will benefit the
remainder of 2017 operations.

b. At the end of May, Pink sold machinery with a book value of $35,000 for $45,000.

c. An inventory loss of $60,000 from market decline occurred in July. In the fourth quarter the inventory had
a market value recovery that exceeded the market decline by $30,000.

Required:
Compute the amount of expense/loss that would appear in Pink Company's June 30, September 30, and
December 31, 2017, quarterly financial statements.

Answer:
June 30 Sept. 30 Dec. 31
Major repairs $30,000 $30,000 $30,000
Gain on Sale (10,000)
Inventory loss/(gain) ________ 60,000 (60,000)
$20,000 $90,000 $(30,000)

Question Title: Assessment (Problem) Question 14-1

Difficulty: Medium
Learning Objective: 10 Indicate some problems with interim reporting and the authoritative position on the issue.
Section Reference: 14.4

39) Stein Corporation's operations involve three industry segments, X, Y, and Z. During 2017, the operating
profit (loss) of each segment was:
Operating
Segment Profit (Loss)
X $ 600
Y 8,100
Z (6,300)

Required:
Determine which of the segments are reportable segments.

Answer:
Both segments Y and Z are reportable segments because the amount of their operating profit (loss) is more
than 10% of $8,700 ($600 + 8,100) - the combined operating profit of segments that did not incur a loss.
Any segment with an operating profit (loss) of $870 or more is a reportable segment.

Question Title: Assessment (Problem) Question 14-2

Difficulty: Medium
Learning Objective: 4 Define a reportable segment.
Section Reference: 14.2
40) Walleye Industries operates in four different industries. Information concerning the operations of these
industries for the year 2017 is:

Revenue
Industry Operating Segment
Segment Total Intersegment Profit (Loss) Assets
A $ 24,000 $4,200 $ 2,700 $ 22,400
B 18,000 2,200 (2,000) 25,200
C 90,000 14,000 3,600 70,000
D 168,000 -0- 23,700 162,400
$300,000 $28,000 $280,000

Required:
Complete the following schedule to determine which of the above segments must be treated as reportable
segments.
10% Test For
Segment Revenue Op. Profit (Loss) Segment Assets Reportable?
A

Answer:
10% Test For
Segment Revenue Op. Profit (Loss) Segment Assets Reportable?
A 8% (1) 9% (5) 8% (9) No
B 6% (2) 7% (6) 9% (10) No
C 30% (3) 12% (7) 25% (11) Yes
D 56% (4) 79% (8) 58% (12) Yes

(1) 24,000/300,000 (7) 3,600/30,000

(2) 18,000/300,000 (8) 23,700/30,000
(3) 90,000/300,000 (9) 22,400/280,000
(4) 168,000/300,000 (10) 25,200/280,000
(5) 2,700/30,000 (11) 70,000/280,000
(6) (2,000)/30,000 (12) 162,400/280,000

Question Title: Assessment (Problem) Question 14-3

Difficulty: Hard
Learning Objective: 4 Define a reportable segment.
Section Reference: 14.2

41) Morgan Company prepares quarterly financial statements. The following information is available
concerning calendar year 2017:

Estimated full-year earnings $3,000,000

 Full-year permanent differences:
Penalty for pollution 150,000
Estimated dividend income exclusion 60,000
Actual pretax earnings, 1/1/17 to 3/31/17 480,000
Nominal income tax rate 40%

Required:
Compute the income tax provision for the first quarter of 2017.

Answer:
Estimated pretax full-year income $3,000,000
Add: Pollution penalty 150,000
Less: Estimated dividend income inclusion (60,000)
Estimated full-year taxable income $3,090,000

Estimated income tax payable ($3,090,000 × 0.40) $1,236,000

Estimated effective tax rate ($1,236,000/$3,000,000) 41.2%

First quarter tax provision ($480,000 × 0.412) $197.760

Question Title: Assessment (Problem) Question 14-4

Difficulty: Hard
Learning Objective: 9 Describe current requirements for companies to report interim information.
Section Reference: 14.4

42) XYZ Corporation has eight industry segments with sales, operating profit and loss, and identifiable
assets at and for the year ended December 31, 2017, as follows:

Sales to Sales to
Segment
Unaffiliated Affiliated Profit or (Loss)
Assets
Customers Customers
Steel $1,350,000 $150,000 $265,000 $2,250,000
Auto Parts 1,200,000 --- 450,000 1,430,000
Coal Mine 600,000 450,000 (300,000) 1,200,000
Textiles 530,000 220,000 150,000 750,000
Paint 1,120,000 380,000 300,000 1,050,000
Lumber 710,000 --- (75,000) 600,000
Leisure Time 690,000 --- 110,000 450,000
Electronics 600,000 --- 300,000 670,000
Total $6,800,000 $1,200,000 $1,200,000 $8,400,000

Required:
A. Identify the segments, which are reportable segments under one or more of the 10 percent
revenue, operating profit, or assets tests.
B. After reportable segments are determined under the 10 percent tests, they must be reevaluated
under a 75 percent revenue test before a final determination of reportable segments can be made.
Under this 75 percent test, identify if any other segments may have to be reported.

Answer:
A. Revenue Test – 10% ($6,800,000 + $1,200,000) = $700,000 800,000
Steel, Auto Parts, Coal Mine, Paint
Operating Profit – 10% ($1,575,000) = $157,500
Steel, Auto Parts, Coal Mine, Paint, Electronics
Segment Assets – 10% ($8,400,000) = $840,000
Steel, Auto Parts, Coal Mine, Paint

Reportable segments applying the 10% tests are: Steel, Auto Parts, Coal Mine, Paint and Electronics.

B. 75% Revenue Test – 75% ($6,800,000) = $5,100,000

Since the 75% revenue test only applies to “Sales to Unaffiliated Customers” only, the five
reportable segments from Part A only include $4,870,000 ($1,350,000 + $1,200,000 +
$600,000 + $1,120,000 + $600,000) worth of sales. Because the 75% test is not met, one of
the segments that did not qualify as a reportable segment under the previous tests must be
included as a reportable segment.

Question Title: Assessment (Problem) Question 14-5

Difficulty: Hard
Learning Objective: 4 Define a reportable segment.
Section Reference: 14.2

43) Blink Company, which uses the FIFO inventory method, had 508,000 units in inventory at the
beginning of the year at a FIFO cost per unit of $20. No purchases were made during the year.
Quarterly sales information and end-of-quarter replacement cost figures follow:

End-of- Quarter
Quarter Unit Sales Replacement Cost
1 200,000 $17
2 60,000 18
3 85,000 13
4 61,000 18
The market decline in the first quarter was expected to be nontemporary. Declines in other quarters
were expected to be permanent.

Required:
Determine cost of goods sold for the four quarters and verify the amounts by computing cost of
goods sold using the lower-of-cost-or-market method applied on an annual basis.

Answer:
Cost of Goods Sold
Computation Quarter Cumulative
 1. Sold 200,000 units @ $20 $4,000,000
Write down of ending inventory of 308,000
units to market (308,000 × [$20 – 17]) 924,000 4,924,000 4,924,000

2. Sold 60,000 units @ $17 1,020,000

Less write down recovery on ending
inventory of 248,000 (248,000 × [$18 - $17]) 248,000 772,000 5,696,000

3. Sold 85,000 units @ $18 1,530,000

Write down of ending inventory of 163,000
units to market (163,000 × [$18 - $13]) 815,000 2,345,000 8,041,000

4. Sold 61,000 units @ $13 793,000

Less write down recovery on ending inventory
of 102,000 (102,000 × [$18 - $13]) 510,000 283,000 8,324,000

Verification
Units Sold During Year FIFO Cost per Unit Amount
406,000 × $20 $8,120,000
Add: Write down of ending inventory to the lower of cost or market
(102,000 × [$20 - $18]) 204,000
Total cost of goods sold for the year $8,324,000

Question Title: Assessment (Problem) Question 14-6

Difficulty: Hard
Learning Objective: 9 Describe current requirements for companies to report interim information.
Section Reference: 14.4

44) Itchy Company’s actual earnings for the first two quarters of 2017 and its estimate during each
quarter of its annual earnings are:

Actual first-quarter earnings $ 800,000

Actual second-quarter earnings 1,020,000
First-quarter estimate of annual earnings 2,700,000
Second-quarter estimate of annual earnings 2,830,000

Itchy Company estimated its permanent differences between accounting income and taxable
income for 2017 as:

Environmental violation penalties $ 45,000

Dividend income exclusion 320,000

These estimates did not change during the second quarter. The combined state and federal tax rate
for Itchy Company for 2017 is 40%.

Required:
Prepare journal entries to record Itchy Company’s provisions for income taxes for each of the first
two quarters of 2017.
Answer:
First Quarter
Estimated Annual Earnings $2,700,000
Add: Environmental Violation Penalties 45,000
2,745,000
Deduct: Dividend Income Exclusion <320,000>
Estimated Taxable Income $2,425,000

Estimated Annual Income Tax Payable ($2,425,000 × 0.40) 970,000

Estimated Effective Combined Annual Tax Rate ($970,000 / $2,700,000) 35.9%

Income Tax Expense 287,200

Income Tax Payable ($800,000 × 0.359) 287,200

Second Quarter
Estimated Annual Earnings $2,830,000
Less: Net Permanent Differences ($320,000 - $45,000) <275,000>
Estimated Taxable Income $2,555,000

Estimated Annual Income Tax Payable (2,555,000 × 0.40) 1,022,000

Estimated Effective Combined Annual Tax Rate ($1,022,000/$2,830,000) 36.1%

Cumulative Income to Date ($800,000 + $1,020,000) $1,820,000

Estimated Income Tax Rate: 0.361
Cumulative Tax Provision Needed 657,020
Tax Provision in 1st Quarter <287,200>
Tax Provision in 2nd Quarter $ 369,820

Income Tax Expense 369,820

Income Tax Payable 369,820

Question Title: Assessment (Problem) Question 14-7

Difficulty: Hard
Learning Objective: 9 Describe current requirements for companies to report interim information.
Section Reference: 14.4