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Flashcards in Segment Reporting Deck (16):
1

What information should a public company present about revenues from foreign operations?

  1. Disclose separately the amount of sales to unaffiliated customers and the amount of intracompany sales between geographical areas.
  2. Disclose as a combined amount sales to unaffiliated customers and intracompany sales between geographical areas.
  3. Disclose separately the amount of sales to unaffiliated customers but not the amount of intracompany sales between geographical areas.
  4. No disclosure of revenues from foreign operations needs to be reported.

Disclose separately the amount of sales to unaffiliated customers and the amount of intracompany sales between geographical areas.

Segment disclosure requires that companies disclose the amount of sales to unaffiliated customers by geographical region. They also require disclosure of intracompany sales between geographical areas. These cannot be aggregated but must be reported separately.

2

Cott Co.'s four business segments have revenues and identifiable assets expressed as percentages of Cott's total revenues and total assets as follows:

Revenues / Assets

  • Ebon 64% / 66%
  • Fair 14% / 18%
  • Gel 14% / 4%
  • Hak 8% / 12%

Which of these business segments are deemed to be reportable segments?

  1. Ebon only
  2. Ebon and Fair only
  3. Ebon, Fair, and Gel only
  4. Ebon, Fair, Gel, and Hak

Ebon, Fair, Gel, and Hak

FAS 131, issued in 1997, uses the term "operating segments" rather than business segments. All four meet at least one of the three criteria for a reportable segment. A segment needs to meet only one of these criteria to be reportable (that is, required to report income and other data separately).

The three criteria are (summarized):

  • segment revenue is 10% or more of total revenue for all reported operating segments,
  • segment profit or loss is 10% or more of total profit for those segments reporting a profit, or 10% of total loss for those segments reporting a loss, whichever is greater in absolute amount, and
  • segment assets are 10% or more of total assets of all operating segments. Thus, each segment meets at least one of the three criteria.

3

Grum Corp., a publicly owned corporation, is subject to the requirements for segment reporting.

In its income statement for the year ending December 31, 2004, Grum reported revenues of $50,000,000, operating expenses of $47,000,000, and net income of $3,000,000. Operating expenses include payroll costs of $15,000,000. Grum's combined identifiable assets of all industry segments at December 31, 2004 were $40,000,000.

In its 2004 financial statements, Grum should disclose major customer data if sales to any single customer amount to at least

  1. $300,000.
  2. $1,500,000.
  3. $4,000,000.
  4. $5,000,000.

$5,000,000.

Under FAS 131 (1997), if revenues from transactions with a single customer amount to 10% or more of a firm's total revenue, that fact must be disclosed, along with the total revenues from each such customer.

For this firm with revenues of $50,000,000, 10% of total revenues is $5,000,000.

4

Which of the following factors determines whether an identified segment of an enterprise should be reported in the enterprise's financial statements under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information?

  • I. The segment's assets constitute more than 10% of the combined assets of all operating segments.
  • II. The segment's liabilities constitute more than 10% of the combined liabilities of all operating segments.

I ONLY.

FAS 131 uses assets, revenue, and profits as the factors identifying reportable segments. A segment meeting any one of the three quantitative factors constitutes a reportable segment. Liabilities are not one of the factors.

5

Which of the following qualifies as a reportable operating segment?

  1. Corporate headquarters, which oversees $1 billion in sales for the entire company
  2. North American segment, whose assets are 12% of the company's assets of all segments, and management reports to the chief operating officer
  3. South American segment, whose results of operations are reported directly to the chief operating officer, and has 5% of the company's assets, 9% of revenues, and 8% of the profits
  4. Eastern Europe segment, which reports its results directly to the manager of the European division, and has 20% of the company's assets, 12% of revenues, and 11% of profits

North American segment, whose assets are 12% of the company's assets of all segments, and management reports to the chief operating officer

Only the North American segment meets at least one of the three quantitative criteria at the 10% level (revenue, income, assets) AND reports to the chief operating decision maker of the firm as a whole. For all three criteria, the segment must account for 10% or more of the combined amount for all operating segments. Reporting to the company-wide chief operating decision maker is also a requirement of an operating segment.

6

Opto Co. is a publicly traded, consolidated enterprise reporting segment information. Which of the following items is a required enterprise-wide disclosure regarding external customers?

  1. The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues
  2. The identity of any external customer providing 10% or more of a particular operating segment's revenue
  3. The identity of any external customer considered to be "major" by management
  4. Information on major customers is not required in segment reporting.

The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues

This is one of the disclosures required in FAS 131. The identity of the customer does not need to be disclosed, but the segment reporting the revenue must be identified. Such a segment would meet one of the three quantitative thresholds for reporting segment information. The three thresholds are 10% of revenue, income, and assets.

7

The following information pertains to Been Corp. and its operating segments for the year ended December 31, year 1:

  • Total revenues $80,000,000
  • Sales to external customers (included in total) $30,000,000

External revenue reported by reportable operating segments must be at least

  1. $22,500,000
  2. $60,000,000
  3. $30,000,000
  4. $37,500,000

$22,500,000

Per ASC Topic 280, there must be enough segments reported so that at least 75% of unaffiliated revenues is shown by reportable segments (75% test). Sales to external customers total $30,000,000, so external revenues reported by reportable operating segments must be at least $22,500,000 ($30,000,000 × 75%).

8

The term chief operating decision maker

  1. Refers to a manager with a specific title.
  2. Refers to a function.
  3. Must be disclosed by title in the financial reporting for segments.
  4. Must be described in the disclosures for the financial reporting for segments.

Refers to a function.

ASC Topic 280 does not require disclosures about the term chief operating decision maker, and specifically states that this term identifies a function, not necessarily a manager with a specific title.

9

Opto Co. is a publicly traded, consolidated enterprise reporting segment information. Which of the following items is a required enterprise-wide disclosure regarding external customers?

  1. The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues.
  2. The identity of any external customer providing 10% or more of a particular operating segment’s revenue.
  3. The identity of any external customer considered to be "major" by management.
  4. Information on major customers is not required in segment reporting.

The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues.

Disclosure is required of the fact that the company receives 10% or more of its revenue from a single customer.

Major customers.  Certain disclosures are made concerning major customers if the following 10% test is met. If 10% or more ofconsolidated revenue comes from a single external customer, the enterprise must disclose this fact in addition to the amount of such revenues, and the identity of the segment or segments making the sales.  (A group of customers under common control, such as subsidiaries of a parent, is regarded as a single customer.  Similarly, the various agencies of a government are considered to be a single customer.)

10

The following information pertains to Klein Corp. and its operating segments for the year ended December 31, year 1:

  • Combined profit of segments reporting profit $600,000
  • Combined loss of segments reporting loss ($400,000)
  • Combined profit and loss of all segments $200,000

Klein has a reportable segment if that segment’s operating profit or loss is

  1. $25,000 profit.
  2. $60,000 profit.
  3. $55,000 loss.
  4. $55,000 profit.

$60,000 profit.

ASC Topic 280 requires that selected data for a segment be reported separately if any one of three criteria is met. One of these criteria is met when a segment’s operating profit (loss) is greater than or equal to 10% of the greater of the absolute combined segment profit or loss. Thus, Klein has a reportable segment if the absolute amount of that segment’s profit or loss exceeds $60,000 ($600,000 × 10%).

11

The following information pertains to Been Corp. and its operating segments for the year ended December 31, year 1:

  • Total revenues $80,000,000
  • Sales to external customers (included in total) $30,000,000

In its financial statements, Been should disclose major customer data if sales to any single customer amount to at least

  1. $5,000,000
  2. $3,000,000
  3. $11,000,000
  4. $8,000,000

$8,000,000

Per ASC Topic 280, if 10% or more of the revenue of an enterprise is derived from sales to any single customer, that fact and the amount of revenue from each significant customer shall be disclosed. In this problem, Been reported revenues of $80,000,000 and thus should disclose major customer data if sales to any single customer amount to $8,000,000 ($80,000,000 × 10%). The segment generating the sales must be disclosed but the name of the customer does not need to be disclosed.

12

An enterprise must disclose all of the following about each reportable segment if the amounts are used by the chief operating decision maker, except

  1. Intersegment revenues.
  2. Cost of goods sold.
  3. Unusual items.
  4. Income tax expense.

Cost of goods sold.

Per ASC Topic 280, the enterprise shall disclose the following about each reportable segment if the specified amounts are reviewed by the chief operating decision maker:

  1. Revenues from external customers
  2. Intersegment revenues
  3. Interest revenue and expense (reported separately unless majority of segment’s revenues are from interest and management relies primarily on net interest revenue to assess performance)
  4. Depreciation, depletion, and amortization expense
  5. Unusual items, extraordinary items
  6. Equity in the net income of investees accounted for by the equity method
  7. Income tax expense or benefit
  8. Significant noncash item

Cost of goods sold is not specifically included as a required disclosure.

13

In financial reporting of segment data, which of the following must be considered in determining if an industry segment is a reportable segment?

  • Sales to unaffiliated customers
  • Intersegment sales

  • Sales to unaffiliated customers - YES
  • Intersegment sales - YES

Intersegment sales are included in segment revenue to determine if the segment revenue is 10% or more of the combined segment revenues. Sales to unaffiliated customers are used to determine if 75% of unaffiliated revenues have been reported by the segments.

14

Under IFRS, the approach used in segment reporting is known as

  1. Segment approach.
  2. Revenue approach.
  3. CFO approach.
  4. Management approach.

Management approach.

The approach to segment reporting is known as the management approach whereby segments are organized by the way management organizes segments internally to make operating decisions and assess performance.

15

Enterprise-wide disclosures are required by

  • A public company with only one reportable segment
  • A not-for-profit organization with several reportable segments

  • A public company with only one reportable segment - YES
  • A not-for-profit organization with several reportable segments - NO

Per ASC Topic 280, enterprise-wide disclosures are to be reported by all public business enterprises, including those with a single reportable segment because the criteria are met for splitting the enterprise into reportable segments. ASC Topic 280 does not apply to not-for-profit organizations or nonpublic enterprises.

16

Enterprise-wide disclosures include disclosures about

  • Products and services
  • Depreciation expense

  • Products and services - YES
  • Depreciation expense - NO

Per ASC Topic 280, enterprise-wide disclosures about products and services, geographic areas, and major customers are required for all enterprises.