Chapter 13 – SEGMENT AND INTERIM REPORTING
13-8
E13-7
LO 13-3
25 min.
E
Significant Foreign Operations
Students must prepare a schedule determining which of five geographic areas are
separately reportable.
E13-8
LO 13-3
20 min.
E
Major Customers
A relatively easy exercise to determine which customers must be disclosed as
major customers. Students must note that separate divisions of the same
governmental unit are individual customers.
E13-9
LO 13-4
25 min.
M
Estimated Annual Tax Rates
The first quarter’s tax must be computed. The exercise includes permanent
differences between accounting income and taxable income.
E13-10
LO 13-4
25 min.
M
Operating Loss Tax Benefits
Students must prepare a schedule of each quarter’s tax benefit or tax expense for
a company that has a first-quarter loss and a profit for each of the next three
quarters. The estimated tax rate also changes between the second and third
quarters.
E13-11
LO 13-3
40 min.
H
Industry Segment and Geographic Area Revenue Tests
Students are required to use the revenue tests for foreign segments to determine
the separate reportability of the foreign operations. The problem includes
interarea sales.
E13-12
LO 13-4
25 min.
E
Different Reporting Methods for Interim Reports [CMA Adapted]
Students must assess seven independent examples of interim reporting
disclosures to determine the appropriateness, or inappropriateness, of each of the
suggested disclosures.
P13-13
LO 13-2
40 min.
M
Segment Reporting Worksheet and Schedules
This problem presents students with data on four divisions that must first be
evaluated as operating segments, and then, in a second part of the problem, as
geographic areas. Students must determine which of the segments (areas) are
separately reportable. They should also determine the amount of sales to an
outside customer that would cause that outside customer to be classified as a
major customer.
P13-14
LO 13-2
65 min.
H
Segment Reporting Worksheet and Schedules
Students are presented with detailed data from five segments and must determine
the profit or loss for each of the segments, determine which of the segments are
separately reportable, and then must prepare the formal footnote disclosures
required by ASC 280.
Chapter 13 – SEGMENT AND INTERIM REPORTING
13-9
P13-15
LO 13-4
45 min.
H
Interim Income Statement
This problem has many of the more technical items from interim reporting.
Students must prepare a schedule showing the computation of the quarterly
income tax and a formal income statement for the second quarter. Included in the
problem are changes in the estimated tax rate, LIFO liquidation, unfavorable cost
variances, and a factory rearrangement cost that benefits more than one period.
P13-16
LO 13-4
45 min.
H
Interim Income Statement
Students must compute the estimated tax rate for the second quarter, after a first–
quarter operating loss. The problem also requires a formal income statement for
the second quarter.
P13-17
LO 13-3
50 min.
H
Evaluating Foreign Operations
This comprehensive problem on foreign segments requires an extensive analysis
of the reporting of four foreign segments.
P13-18
LO 13-4
50 min.
H
Interim Accounting Changes
A comprehensive problem on evaluating the treatment of various accounting
changes in interim reports.
P13-19
LO 13-2
40 min.
M
Segment Disclosures in the Financial Statements
This problem requires students to evaluate segment information to determine
separately reportable segments and to prepare the formal segment disclosure
footnote.
P13-20
LO 13-3
30 min.
M
Reporting Operations in Different Countries
Information for various countries is presented which students must evaluate to
determine which countries are separately reportable. They should also prepare
the information about the company’s domestic and foreign operations as required
by ASC 280.
P13-21
LO 13-2,
LO 13-3
12 min.
M
Matching Terms
Ten key terms need to be matched to the correct descriptions. Fifteen choices are
provided.
Chapter 13 – SEGMENT AND INTERIM REPORTING
13–10
OTHER RESOURCES
SEGMENT REPORTING TESTS
THREE 10% SIGNIFICANCE TESTS FOR OPERATING SEGMENTS:
Notes:
1. Operating segments are defined by management approach of evaluating components of
the company.
2. Note: If any of these tests are met, the segment is reportable.
Rule:
A segment is separately reportable if a segment’s numerator is greater than or equal to 10% of the
denominator for each of the following:
1. Revenue Test
Numerator =
Total revenue of each segment, including intersegment sales
Denominator =
Total revenue of all segments, including intersegment sales
2. Profit or Loss Test
Numerator =
Absolute amount of profit or loss of each segment (profit or loss is defined by the
company and as used by the chief operating decision maker in evaluating the
segment)
Denominator =
Larger, in absolute value terms, of the combined profits (of the profitable
segments) or the combined losses (of the unprofitable segments)
3. Assets Test
Numerator =
Assets of each segment (assets are defined by the company and as used by the
chief operating decision maker in evaluating the segment)
Denominator =
Total assets of all segments
Chapter 13 – SEGMENT AND INTERIM REPORTING
13–11
Specific Disclosures Required for Each
Reportable Segment
1. General information about
a) the factors used to identify reportable segments.
b) types of products and services from which each reportable segment
derives its revenues.
2. Amounts for each separately reportable segment
a) its profit or loss and the measurement procedures used to determine the
profit or loss including how the company accounts for intersegment
transactions
b) segment assets
3. Measures of segment profit or loss. Each of the following if it is used to measure the
segment profit or loss reviewed by the company’s chief operating decision maker
a) revenues from external sales
b) revenues from transactions with other operating segments of the company
c) interest revenue
d) interest expense
e) depreciation and amortization expense
f) equity in the income of the investees accounted for by the equity method
g) income tax expense or benefit
h) extraordinary items
i) other significant noncash items
4. Segment assets – the following information on each separately reportable segment’s
assets if it is included in the computation of segment assets reviewed by the company’s
chief operating decision maker
a) the amount of investment in equity method investees
b) the total expenditures for increases to long-term productive assets
5. Reconciliations of the total reportable segments’ revenues, measures of segment profit or
loss, and segments’ assets to the related consolidated totals for those items.
Chapter 13 – SEGMENT AND INTERIM REPORTING
13–12
ESTIMATING ANNUAL EFFECTIVE TAX RATE
(Reporting taxes in interim periods)
(Required for each interim period)
Estimated annual income from continuing operations
$XX
Adjust for permanent differences between tax income and accounting income
X
Add premiums on key officers’ life insurance
Deduct dividends received exclusion
___
Estimated annual taxable income
$XX
Combined federal, state, and international tax rate
X
%
___
Estimated annual taxes before tax credits
$XX
Less: anticipated tax credits
(X)
___
Estimated income taxes for the year
$ X
Divide by estimated annual income from continuing operations (from above)
XX
___
Estimated effective annual tax rate on continuing operations
=
X
%
Cumulative year-to-date income
x Estimated annual tax rate
=
Tax provision to date
–
Prior periods’ expense
=
Current period’s tax
Chapter 13 – SEGMENT AND INTERIM REPORTING
13–13
Interim Reporting Standards
Item
General rule
Exceptions
Revenues
Same basis as annual reports.
None
Cost of goods sold
Same basis as annual reports.
1. Gross profit method may be used to estimate COGS and
ending inventory for each interim period.
2. Temporary liquidations of LIFO base-period inventory should
be charged to COGS at expected replacement cost.
3. Temporary declines in inventory market value need not be
recognized.
4. Standard costing price and volume variances that are expected
to be absorbed by the end of the fiscal year should be deferred.
All other costs and
expenses
Same basis as annual reports.
Expenditures which clearly benefit more than one interim period
may be allocated among periods benefited, e.g., annual repairs,
property taxes.
Income taxes
Estimate annual effective tax rate.
None
Disposal of a component
of the entity or
extraordinary, unusual ,
infrequently occurring
and contingent items
Recognized in interim period as incurred.
None
Chapter 13 – SEGMENT AND INTERIM REPORTING
13–14
Accounting Changes
Change in accounting principle:
Retrospective application to all pre-change
interim periods reported.
Change in an accounting estimate: Current
and prospective interim periods only.
Change in a reporting entity: Retrospective
application to all pre-change interim periods
reported.
None