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Develop Your Skills
Research Case 1—Segment Reporting (60 minutes)
This assignment requires the student to select a company and find the note on
operating segments in that company’s annual report. The responses to this
assignment will depend upon the company selected by the student for analysis.
Research Case 2—Interim Reporting (60 minutes)
This assignment requires students to select a company, find the most recent
quarterly report for that company, and then determine whether the company
provides the minimum disclosure required as listed in the text. The responses
to this assignment will depend upon the company selected by the student for
analysis.
Research Case 3—Operating Segments (60 minutes)
This assignment requires students to find the note on operating segments in
each company's annual report, determine three items of information (answer
three questions) from those notes, and prepare a written summary of their
findings. The primary objective of this requirement is to help students develop
their ability to present such findings in a written format. In answering these
questions, students will become familiar with the different formats and
terminology used by companies in providing operating segment information. The
answers to these questions will change depending upon the most recent annual
report available on the company’s website. The following general observations
indicate how these questions might be answered.
1. The two most important operating segments in terms of percentage of total
revenues.
The answer to this question is determined by calculating the ratio “segment
products/services.
2. The two operating segments with the largest growth in revenues.
This question is answered by calculating the ratio “(current year segment
3. The two most profitable operating segments in terms of profit margin.
This question is answered by calculating the ratio “segment profit/segment
revenues” for each segment of each company (again using revenues from
sales to external customers if separately reported). Segment profit goes
After reviewing the information provided by each of these companies in its
segment note, instructors might wish to add additional questions to this
assignment. For example, do these companies use generally accepted
accounting principles in preparing segment information? Does each company
provide a reconciliation to consolidated totals?
Research Case 4—Comparability of Geographic Area Information (60 minutes)
This assignment requires students to find the note on geographic areas in each
company's annual report and then prepare a report describing the comparability
of this information. In preparing this assignment, students will see the different
formats used by companies in providing this information, and the different levels
assignment.
Geographic Areas Reported by Four Pharmaceutical Companies
Bristol-Myers Squibb Eli Lilly Merck Pfizer
U.S. U.S. U.S. U.S.
Europe Europe - -
- - E/ME/A -
- - - Developed Europe
Japan, Asia Pacific, and
Canada - - -
- Japan Japan -
Latin America, Middle East,
and Africa - - -
Emerging Markets - - Emerging Markets
- - - Developed Rest of World
Other Other Other -
The only geographic area that can be directly compared across these four
pharmaceutical companies is the United States. Bristol-Myers Squibb provides
somewhat more detailed information than the other companies. Only Eli Lilly and
Merck report an individual country (Japan) other than the U.S. Issues that could
geographic areas, focusing on developed vs. emerging markets.
Evaluation Case—Operating Segment Disclosures (60 minutes)
1. Two questions must be considered in evaluating CHIC’s operating segment
disclosures: (a) have reportable operating segments been appropriately
determined, e.g., is it appropriate to combine the Helicopters and Ships divisions
into one segment designated as Other, and (b) are the disclosures provided for
each segment in compliance with FASB ASC Topic 280, Segment Reporting?
With respect to question (a), ASC 280 allows (but does not require) segments to be
combined if they have essentially the same business activities in essentially the
same economic environments. In determining whether business activities and
environments are similar, management must consider these aggregation criteria:
5. If applicable, the nature of the regulatory environment.
Segments must be similar in each and every one of these areas to be combined.
The facts of this case indicate that the types of customers and method used to
distribute products differ across the four divisions, and each division must
comply with industry-specific regulations. Thus, the Helicopters and Ships
Revenue test: Total segment revenues are $11,171,005; thus, any segment with
more than $1,117,100 in sales is separately reportable.
Automobiles, Trucks, and Helicopters meet this threshold.
Profit (loss) test: Total segment profits of $ 1,686,700 ($881,292 + $456,530 +
$348,878) exceed total segment losses of $58,879, thus any segment with profit or
loss greater than $168,670 is separately reportable.
Automobiles, Trucks, and Helicopters meet this threshold.
with ASC 280.
With respect to question (b), Note X. Operating Segments prepared by CHIC’s
accountant fails to disclose information for the Helicopters and Ships segments
separately. Note X. also fails to separately disclose revenues from sales to
2. The disclosures required under ASC 280 could be provided in the following
manner:
Accounting Standards Case 1 —Segment Reporting (15 minutes)
Source of guidance: FASB ASC 280-10-55-2: Segment Reporting; Overall;
Implementation Guidance and Illustrations; Operating Segments - Equity
Method Investees
ASC 280-10-55-2 states “An equity method investee could be considered an
operating segment, if, under the specific facts and circumstances being
considered, it meets the definition of an operating segment, even though the
investor has no control over the performance of the investee.”
Thus, in response to the questions asked in the case:
Accounting Standards Case 2—Interim Reporting (15 minutes)
Source of guidance: FASB ASC 270-10-50-6: Interim Reporting; Overall;
Disclosure; Contingencies
Analysis Case—Walmart Interim and Segment Reporting (60 minutes)
1. Assess the seasonal nature of Walmart’s sales and income for the company
as a whole and by operating segment.
The excerpt from Note 17 Quarterly Financial Data shows that Walmart
experienced a significant increase in net sales and income in the quarter
reports from the amounts reported in Note 15 Segments.
These results show the seasonal nature of the company’s two largest
2. Assess Walmart’s profitability by quarter and by segment.
Note 17 can be used to assess profitability in terms of profit margin (Income
from continuing operations/Net sales) by quarter.
These results indicate that profit margins are highest in the fourth quarter of
Note 15 can be used to assess profitability in terms of operating profit margin
(Operating income/Net sales) and return on assets (Operating income/Total
assets of continuing operations) by segment.
These results indicate that Walmart U.S. by far is the most profitable segment
for Walmart Stores, Inc. Although the Walmart International segment has a
reasonable Operating Profit Margin (4.94%), that segment’s Return on Assets
Excel Case—Coca-Cola Geographic Segment Information (60 minutes)
1. The ratios required to be calculated for the Coca-Cola Company are as
follows:
Percentage of total net revenues 2011 % 2010 %
Eurasia & Africa 2,841 7.21% 2,556 9.00%
Europe 5,474 13.89% 5,249 18.48%
Total 39,414
% 28,402
%
Percentage growth in total net
revenues 2010 to 2011 2009 to 2010
Eurasia & Africa 11.15% 16.34%
Europe 4.29% 0.88%
Latin America 13.81% 6.16%
Operating income as a percentage of
total net revenues (profit margin) 2011 2010
Eurasia & Africa 38.40% 38.34%
Europe 56.45% 56.70%
2. There is no right or wrong answer to this question. Students could argue that
Latin America and Europe would be the areas of the world in which to expand
because profit margin is highest in these areas. There would seem to be more
3. There is a great deal of non-accounting information that one would need to
determine a specific region of the world in which to focus expansion. For
example, one might need to gather information to answer the following
questions:
Is there a sufficiently large population with enough disposable income to
be able to purchase the company’s products?
