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24. C (Determine reportable segments under three tests)
Revenue Test
Combined segment revenues $32,750,000
10% criterion x 10%
Minimum $ 3,275,000
24. (continued)
Asset Test
Combined segment assets $67,500,000
10% criterion x 10%
25. D
26. B (Determine minimum number of reportable segments under 75% rule)
The test to verify that a sufficient number of industry segments is being
disclosed is based on revenues generated from unaffiliated customers.
27. C (Determine expense amounts to be recognized in interim period)
Depreciation $70,000 x 1/4 = $17,500
28. C (Determine net income to be reported in interim period)
Income as reported $100,000
Less: Extraordinary loss (recognized in full
29. C (Determine bonus expense to be recognized in interim period)
Bonus $1,000,000 x 1/4 = $250,000
32. A (Determine COGS in interim period under LIFO with LIFO liquidation)
5,000 units x $80 = $400,000
300 units x $50 = 15,000
5,300 units $415,000
34. (10 minutes) (Apply the Profit or Loss Test to Determine Reportable Operating
Segments)
Calculation of profit or loss.
Revenues Intersegment Operating
from Outsiders Transfers Expenses Profit Loss
35. (25 minutes) (Apply the Three Tests Necessary to Determine Reportable
Operating Segments)
Revenue Test (numbers in thousands)
Segment Revenues Percentage
Plastics $ 6,842 61.6% (reportable)
Metals 2,561 23.1% (reportable)
Profit or Loss Test (numbers in thousands)
Segment Revenues Expenses Profit Loss
Plastics $ 6,842 $ 4,290 $2,552 $ (reportable)
Metals 2,561 1,793 768 (reportable)
Asset Test (numbers in thousands)
Segment Assets Percentage
Plastics $1,588 21.4% (reportable)
Metals 3,599 48.4% (reportable)
three tests and therefore are reportable.
36. (20 minutes) (A Variety of Computational Questions about Operating Segment
and Major Customer Testing)
a. Total revenues for Fairfield (including intersegment revenues) amount to
$420,000.
b. Disclosure of operating segments is considered adequate only if the
separately reported segments have sales to unaffiliated customers that
disclosure of these three segments would be adequate.
c. Major customer disclosure is based on a level of sales to unaffiliated
d. This test is based on the greater (in absolute terms) of profits or losses. In
this problem, the total profit of Red, Blue, Green, and White ($1,971,000) is
37. (25 minutes) (Apply the three tests necessary to determine reportable
operating segments and determine whether a sufficient number of segments
is reported)
Revenue Test (numbers in thousands)
Segment Revenues Percentage
Books $ 205 9.3%
Finance 184 8.3%
Total $2,212 100.0%
Profit or Loss Test (numbers in thousands)
Segment Revenues Expenses Profit Loss
Books $ 205 $ 218 $ 13
Computers 936 899 $ 37 (reportable)
This test is based on the greater (in absolute amount) of total profit from
Asset Test (numbers in thousands)
Segment Assets Percentage
Books $ 206 6.1%
Computers 1,378 40.5% (reportable)
Total $3,398 100.0%
37. (continued)
Test for Sufficient Number of Segments Being Reported
Four of Mason’s segments (computers, maps, travel, and finance) meet at
least one of the tests carried out above. To determine whether a sufficient
number of segments is being reported, revenues from unaffiliated parties
segments.
Segment Sales to Outsiders
Computers $ 696
Maps 416
38. (15 minutes) (Apply materiality tests adopted by a company to determine
countries to be reported separately)
Revenue Test (sales to unaffiliated parties)
United States $4,610,000 80.3%
Spain 395,000 6.9%
Long-lived Asset Test
United States $1,894,000 83.7%
Spain 191,000 8.4%
None of the individual foreign countries meets either the revenue or long-
39. (20 minutes) (Allocate costs incurred in one quarter that benefit the entire year
and determine income tax expense
39. (continued)
40. (15 minutes) (Treatment of accounting change made in other than first interim
period)
Retrospective application of the FIFO method results in the following
restatements of income for 2014 and the first quarter of 2015:
2014 2015
1 st
Q. 2 nd
Q. 3 rd
Q. 4 th
Q. 1 st
Q.
Sales $10,000 $12,000 $14,000 $16,000 $18,000
Cost of goods sold (FIFO) 3,800 4,600 5,200 6,000 7,400
Net income in the second quarter of 2015 is $4,560 [$20,000 – 9,000 – 3,400 =
$7,600 – 3,040 (40%) = $4,560].
Three Months Ended Six Months Ended
June 30 June 30
2014 2015 2014 2015
41. (10 minutes) (LIFO liquidation in interim report)
Determination of Cost-of-Goods-Sold and Gross Profit
Sales (110,000 units @ $20) $2,200,000
Cost-of-goods-sold
100,000 units @ $14 $1,400,000
10,000 units @ $15 (replacement cost) 150,000 1,550,000
Gross profit $650,000
Journal Entries to Record Sales and Cost-of-Goods-Sold
To record cost-of-goods-sold with a historical cost of $1,520,000 and an excess of
replacement cost over historical cost for beginning inventory liquidated of
$30,000 (($15 – $12) x 10,000 units).
