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Chapter 13 - Segment and Interim Reporting
E13-6 Multiple-Choice Questions on Income Taxes at Interim Dates [AICPA Adapted]
1.
a –
Income tax expense for an interim period is calculated
by multiplying the estimated income tax rate by pre-tax
accounting income for the interim period.
(b) incorrect. Pre-tax accounting income is used for this
calculation.
(c) incorrect. The estimated income tax rate is used for
this calculation.
(d) incorrect. The estimated income tax rate is used for
this calculation.
2.
b –
$170,000 x 0.45 = $ 76,500
$130,000 x 0.40 = (52,000)
Third quarter
$ 24,500
3.
c –
Net operating loss credit ($100,000 x 0.40)
$ 40,000
Other tax credit
10,000
Total credits
$ 50,000
Estimated annual operating loss
÷100,000
Tax benefit rate ($50,000 / $100,000)
.50
Operating loss in first quarter
x$20,000
Tax benefit in first quarter
$ 10,000
4.
c –
When calculating third quarter income tax expense you
must subtract your provision in the current year to
eliminate double counting.
(a) incorrect. The income number that is used is the to-
date earnings
(b) incorrect. The statutory rate is never used.
(d) incorrect. The statutory rate is never used.
5.
c –
.25 X $200,000 = $50,000.
6.
b –
Deferred taxes are computed only for temporary
differences. The other items are permanent differences.
E13-7 Significant Foreign Operations
Percent of
Sales to
Consolidated
Unaffiliated
Revenue of
Separately
Geographic Area
Customers
$793,000
Reportable
U.S.
$364,000
45.9
%
Yes
Britain
252,000
31.8
Yes
Brazil
72,000
9.1
No
Israel
58,000
7.3
No
Australia
47,000
5.9
No
Consolidated Revenue
$793,000
Note that the country-based revenue test is based on sales to unaffiliated
customers. All countries having material sales to unaffiliated customers of $79,300
($793,000 x 0.10) or more must be separately reported.
Chapter 13 - Segment and Interim Reporting
b.
Income Tax Expense
68,000
Income Tax Payable
68,000
Record first-quarter tax provision:
$170,000 total pre-tax earnings
+ 30,000 add back extraordinary loss that is reported separately with its own
income tax effect
$200,000 first-quarter income from continuing operations
x 0.34 effective annual tax rate
$ 68,000 first quarter tax provision for
continuing operations
(Note that the problem requires only the tax provision for the continuing operations.
The tax effect of the extraordinary loss would be recognized separately.)
E13-10 Operating Loss Tax Benefits
Income (Losses)
Estimated
Tax (Benefit)
Before Taxes
Effective
Less
Reported
Year-
Annual
Year-
Previously
In
Period
Period
to-Date
Tax Rate
to-Date (a)
Provided
Period
1
$(100,000)
$(100,000)
40%
$(40,000)
-0-
$ (40,000)
2
80,000
(20,000)
40%
(8,000)
$(40,000)
32,000
3
160,000
140,000
45%
63,000
(8,000)
71,000
4
400,000
540,000
45%
243,000
63,000
180,000
Total
$ 540,000
$243,000
E13-11 Industry Segment and Geographic Area Revenue Tests
a.
Operating segments revenue test (in thousands)
Combined
Percent of Combined
Separately
Operating Segment
Revenue
Revenue of $1,385
Reportable
Ethical Drugs
$
320
23.1
%
Yes
Nonprescription Drugs
515
37.2
Yes
Generic Drugs
470
33.9
Yes
Industrial Chemicals
80
5.8
No
Total
$1,385
b.
Geographic Area revenue test (in thousands)
Unaffiliated
Percent of Consolidated
Separately
Geographic Area
Revenue
Revenue of $1,165
Reportable
Domestic
$ 820
70.4
%
Always
Mexico
245
21.0
Yes*
Taiwan
100
8.6
No*
Total
$1,165
Chapter 13 - Segment and Interim Reporting
*Assuming a 10% materiality threshold. Individual foreign countries exceeding 10%
would be listed separately. In this case, only Mexico would have to be separately
reported.
c.
Disclosure of operating segments' revenue (in thousands)
Nonpre-
Ethical
scription
Generic
Com-
Elimina-
Consol-
Drugs
Drugs
Drugs
Other
bined
tions
idated
Sales to
Unaffiliates
$300
$425
$370
$70
$1,165
$1,165
Intersegment
Revenue
20
90
100
10
220
$(220)
$320
$515
$470
$80
$1,385
$(220)
$1,165
d.
Disclosure of geographic areas' revenue (in thousands)
Geographic Area
Unaffiliated Revenue
United States
$ 820
Total Foreign
345
*
Total
$1,165
Significant country:
Mexico
$ 245
*Individual foreign countries exceeding 10% of total unaffiliated revenue ($1,165)
would be listed separately. In this case, only Mexico would be reported separately.
E13-12 Different Reporting Methods for Interim Reports [CMA Adapted]
1. Not acceptable. Revenue should be recognized when realized.
2. Acceptable. The gross profit method may be used for interim reports.
3. Acceptable. Costs may be allocated on a reasonable basis.
4. Acceptable. A recovery to original cost may be recorded in a subsequent interim
period.
5. Not acceptable. Gains are recognized in the period of the sale.
6. Acceptable. Costs may be allocated on a reasonable basis.
7. Not acceptable. ASC 250 requires that a change in depreciation in long-lived assets
be accounted for as a change in estimate affected by a change in accounting
