AICPA AICPA Certifications CPA-TEST Questions & Answers

• Question 141:

  A development stage enterprise should use the same generally accepted accounting principles that apply to established operating enterprises for:

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: A

  Explanation: Choice "a" is correct. Development stage enterprises must use all the same principles as established enterprises including those of revenue recognition and deferral of expenses. The primary difference is that development stage enterprises must provide additional disclosures not required of established operating enterprises.

• Question 142:

  Which of the following types of entities are required to report on business segments?

  A. Nonpublic business enterprises.

  B. Publicly-traded enterprises.

  C. Not-for-profit enterprises.

  D. Joint ventures.

  Correct Answer: A

  Explanation:

  Choice "b" is correct. Only publicly-traded enterprises are required to report on business segments.

  Choices "a", "c", and "d" are incorrect, per the above.

• Question 143:

  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.

  A.

  I only.

  B.

  II only.

  C.

  Both I and II.

  D.

  Neither I nor II.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. For segment reporting, if an identified segment's assets constitute more than 10% of

  the combined assets of all operating segments, the segment should be reported. The same rule does not

  apply for the segment's liabilities. The candidate does have to remember the 10% and also the 10% of

  "what."

  Choice "b" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10%

  of the combined assets of all operating segments, the segment should be reported. The same rule does

  not apply for the segment's liabilities.

  Choice "c" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10%

  of the combined assets of all operating segments, the segment should be reported. The same rule does

  not apply for the segment's liabilities, so the correct answer cannot be "Both."

  Choice "d" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10%

  of the combined assets of all operating segments, the segment should be reported. The correct answer cannot be "Neither."

• Question 144:

  Which of the following should be disclosed for each reportable operating segment of an enterprise?

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: A

  Explanation:

  Choice "a" is correct. For each reportable segment of an enterprise, both profit or loss and total assets

  should be disclosed. In disclosure questions, if you are not sure, disclose the most rather than the least.

  Choice "b" is incorrect. For each reportable segment of an enterprise, both profit or loss and total assets

  should be disclosed.

  Choice "c" is incorrect. For each reportable segment of an enterprise, both profit or loss and total assets

  should be disclosed.

  Choice "d" is incorrect. For each reportable segment of an enterprise, both profit or loss and total assets

  should be disclosed.

• Question 145:

  Which of the following qualifies as an operating segment?

  A. Corporate headquarters, which oversees $1 billion in sales for the entire company.

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

  C. 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.

  D. 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.

  Correct Answer: B

  Explanation:

  Choice "b" is correct. Assets of the North American segment exceed 10% combined assets of all operating

  segments.

  Choice "a" is incorrect. Corporate headquarters in not considered a segment.

  Choice "c" is incorrect. The South American segment does not meet any of the 10% minimums (Revenue,

  PandL or Assets).

  Choice "d" is incorrect. Eastern Europe segment does not report to the chief operating officer.

• Question 146:

  In financial reporting of segment data, which of the following items is always used in determining a segment's operating income?

  A. Income tax expense.

  B. Sales to other segments.

  C. General corporate expense.

  D. Gain or loss on discontinued operations.

  Correct Answer: B

  Explanation:

  Choice "b" is correct. Sales to other segments would be used in determining a segment's operating

  income.

  Rule: Equity in net income of another company, general corporate expenses, interest, income tax expense,

  and gains or losses on discontinued operations are all not included in segment profit unless they are

  included in the determination of segment profit reported to the "Chief Operating Decision Maker."

• Question 147:

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

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

  B. The identity of any external customer providing 10% or more of a particular operating segment's revenue.

  C. The identity of any external customer considered to be "major" by management.

  D. Information on major customers is not required in segment reporting.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. In order to conform to GAAP, financial statements for public business enterprises

  must report segment information about a company's major customers if that customer provides 10% or

  more of the combined revenue, internal and external, of all operating segments.

  Choice "b" is incorrect. Revenue is 10% of ALL operating segments not "a particular" segment.

  Choice "c" is incorrect. Disclosure is not at management's discretion.

  Choice "d" is incorrect. Disclosure is required.

• Question 148:

  ABC Corp. discloses supplemental industry segment information. The following information is available for 1992:

  

  Additional 1992 expenses, not included above, are as follows:

  Indirect operating expenses $7,200 General corporate expenses 4,800

  Segment C's 1992 operating profit was:

  A. $5,000

  B. $3,200

  C. $2,600

  D. $2,000

  Correct Answer: A

  Explanation:

  Choice "a" is correct. $5,000 operating profit for Segment C.

  Rule: Operating profit by segments is based on the measure of profit reported to the "Chief Operating

  Decision Maker."

  Interest expense, income taxes, and general corporate expenses are not allocated to the divisions solely

  for the purposes of segment disclosures; they may be allocated if that is how the segments report to the

  "Chief Operating Decision Maker."

  

• Question 149:

  What information should a public company present about revenues from its reporting segments?

  A. Disclose separately the amount of sales to unaffiliated customers and the amount of intracompany sales.

  B. Disclose as a combined amount sales to unaffiliated customers and intracompany sales between geographic areas.

  C. Disclose separately the amount of sales to unaffiliated customers but not the amount of intracompany sales between geographic areas.

  D. No disclosure of revenues from foreign operations need be reported.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. Unaffiliated customers sales and intracompany sales must be disclosed separately.

• Question 150:

  ABC Co.'s total revenues from its three operating segments were as follows: Which operating segment(s) is (are) deemed to be reportable segments?

  

  A. None.

  B. Lion only.

  C. Lion and Monk only.

  D. Lion, Monk, and Nevi.

  Correct Answer: D

  Explanation:

  Choice "d" is correct. A reportable operating segment is one having 10% of all revenue, including revenue

  from unaffiliated sales and from intersegment sales:

  Lion's revenue percentage is 66.7% [$100,000/150,000].

  Monk's revenue percentage is 17.3% [$26,000/150,000].

  Nevi's revenue percentage is 16% [$24,000/150,000].

  Thus, all three segments meet the 10% of total revenues test and are reportable as operating segments.

  SFAS 14 para. 10 and 15 as amended by SFAS 131

  Choice "a" is incorrect. All segments with revenue percentages exceeding 10% of total revenues are

  reportable operating segments.

  Choice "b" is incorrect. Lion is not the only segment with revenue percentages exceeding 10% of total

  revenues.

  Choice "c" is incorrect. Nevi has a revenue percentage exceeding 10% of total revenues.