Test Prep Test Prep Certifications FINANCIAL-ACCOUNTING-AND-REPORTING Questions & Answers

• Question 21:

  Grum Corp., a publicly-owned corporation, is subject to the requirements for segment reporting. In its income statement for the year ended December 31, 1991, Grum reported revenues of $50,000,000, operating expenses of $47,000,000, and net income of $3,000,000. Operating expenses include payroll costs of $ 15,000,000. Grum's combined identifiable assets of all industry segments at December 31, 1991, were $40,000,000. Cott Co.'s four business segments have revenues and identifiable assets expressed as percentages of Cott's total revenues and total assets as follows: Which of these business segments are deemed to be reportable segments?

  

  A. Ebon only.

  B. Ebon and Fair only.

  C. Ebon, Fair, and Gel only.

  D. Ebon, Fair, Gel, and Hak.

  Correct Answer: D

  Rule: A segment must be at least 10% of:

  1.

  Combined revenues (whether intersegment or unaffiliated customers), or

  2.

  Operating income (of all segments not having an operating loss), or

  3.

  Identifiable assets.

  Choice "d" is correct. Ebon, Fair, Gel, and Hak, since all four companies meet at least one of the criteria.

• Question 22:

  Chester Corp. was a development stage enterprise from its inception on September 1, 1987 to December 31, 1988. The following information was taken from Chester's accounting records for the above period:

  

  For the period September 1, 1987 to December 31, 1988, what amount should Chester report as net loss?

  A. $ 50,000

  B. $150,000

  C. $350,000

  D. $450,000

  Correct Answer: D

  Choice "d" is correct. $450,000 net loss for the period Sept. 1, 1987 to DeC. 31, 1988.

  Rule: "Development stage enterprises" present their FS in accordance with GAAP and make additional

  disclosures such as: cumulative net losses, cumulative deficit, cumulative sales and expenses.

  

• Question 23:

  Grum Corp., a publicly-owned corporation, is subject to the requirements for segment reporting. In its income statement for the year ended December 31, 1991, Grum reported revenues of $50,000,000, operating expenses of $47,000,000, and net income of $3,000,000. Operating expenses include payroll costs of $ 15,000,000. Grum's combined identifiable assets of all industry segments at December 31, 1991, were $40,000,000. In its 1991 financial statements, Grum should disclose major customer data if sales to any single customer amount to at least:

  A. $300,000

  B. $1,500,000

  C. $4,000,000

  D. $5,000,000

  Correct Answer: D

  Choice "d" is correct. $5,000,000 (10% x $50,000,000 revenue). If revenue from a single external customer is 10% or more of total revenue, then the company should disclose this fact, the total amount of revenue from the customer, and the segment or segments reporting the revenues. The identity of the customer need not be disclosed.

• Question 24:

  On March 15, 1992, Krol Co. paid property taxes of $90,000 on its office building for the calendar year 1992. On April 1, 1992, Krol paid $150,000 for unanticipated repairs to its office equipment. The repairs will benefit operations for the remainder of 1992. What is the total amount of these expenses that Krol should include in its quarterly income statement for the three months ended June 30, 1992?

  A. $172,500

  B. $97,500

  C. $72,500

  D. $37,500

  Correct Answer: C

  Rule: Actual and estimated expenditures benefiting all interim periods equally should be expensed ratably throughout the year.

  

  Choice "c" is correct. $72,500 total expense for the three months ended June 30, 1992.

• Question 25:

  An inventory loss from a market price decline occurred in the first quarter, and the decline was not expected to reverse during the fiscal year. However, in the third quarter the inventory's market price recovery exceeded the market decline that occurred in the first quarter. For interim financial reporting, the dollar amount of net inventory should:

  A. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter.

  B. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the market price recovery.

  C. Decrease in the first quarter by the amount of the market price decline and not be affected in the third quarter.

  D. Not be affected in either the first quarter or the third quarter.

  Correct Answer: C

  Choice "a" is correct. Market price declines should be recognized in the interim period in which decline is

  judged permanent and later, if they "turn around," are recognized as gains in subsequent periods only to

  the extent of previously reported losses.

  Choice "b" is incorrect. Recovery should not cause an increase in inventory value above original cost.

  Choice "c" is incorrect. The recovery should be recognized to the extent of the first quarter write down.

  Choice "d" is incorrect.

• Question 26:

  The following information pertains to Aria Corp. and its divisions for the year ended December 31, 1988:

  

  Aria and all of its divisions are engaged solely in manufacturing operations. Aria has a reportable segment if that segment's revenue exceeds:

  A. $264,000

  B. $260,000

  C. $204,000

  D. $200,000

  Correct Answer: B

  Choice "b" is correct. $260,000 represents a reportable segment (10% of total sales):

  

  Rule: To be significant enough to report on, a segment must be at least 10% of:

  1.

  Combined revenues (whether intersegment or unaffiliated customers), or

  2.

  Operating income, or

  3.

  Identifiable assets.

• Question 27:

  Hyde Corp. has three manufacturing divisions, each of which has been determined to be a reportable segment. In 1989, Clay division had sales of $3,000,000, which was 25% of Hyde's total sales, and had operating costs of $1,900,000, as reported to the CFO. In 1989, Hyde incurred operating costs of $500,000 that were not directly traceable to any of the divisions. In addition, Hyde incurred corporate interest expense of $300,000 in 1989. In reporting segment information, what amount should be shown as Clay's operating profit for 1989?

  A. $875,000

  B. $900,000

  C. $975,000

  D. $1,100,000

  Correct Answer: D

  Choice "d" is correct. $1,100,000 operating profit for clay.

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

  decision maker."

  Allocations for general operating costs and interest, etc., should not be made solely for purposes of

  segment disclosures.

  

• Question 28:

  YIV, Inc. is a multidivisional corporation, which has both intersegment sales and sales to unaffiliated customers. YIV should report segment financial information for each division meeting which of the following criteria?

  A. Segment operating profit or loss is 10% or more of consolidated profit or loss.

  B. Segment operating profit or loss is 10% or more of combined operating profit or loss of all company segments.

  C. Segment revenue is 10% or more of combined revenue of all the company segments.

  D. Segment revenue is 10% or more of consolidated revenue.

  Correct Answer: C

  Choice "c" is correct. Segment revenue is 10% or more of combined revenue of all the company segments. Rule: To be significant enough to report on, a segment must be at least 10% of:

  1.

  Combined revenues (whether intersegment or affiliated customers) or

  2.

  Operating profit (of all segments not having an operating loss), or

  3.

  Identifiable assets.

  Choice "a" is incorrect. Rule is 10% of "operating profit," not "consolidated profit."

  Choice "b" is incorrect. Segments with "operating losses" are not combined with those having "operating

  profits" in determining a segment. Choice "d" is incorrect. "Consolidated revenue" would not include

  "intersegment revenue." Rule is "combined revenue," not "consolidated revenue."

• Question 29:

  On June 30, 1991, Mill Corp. incurred a $100,000 net loss from disposal of a component of a business. Also, on June 30, 1991, Mill paid $40,000 for property taxes assessed for the calendar year 1991. What amount of the foregoing items should be included in the determination of Mill's net income or loss for the six-month interim period ended June 30, 1991?

  A. $140,000

  B. $120,000

  C. $90,000

  D. $70,000

  Correct Answer: B

  Choice "b" is correct. $120,000 expense included in the determination of net income or loss for the sixmonth interim period ended June 30, 1991.

  

• Question 30:

  For interim financial reporting, the computation of a company's second quarter provision for income taxes uses an effective tax rate expected to be applicable for the full fiscal year. The effective tax rate should reflect anticipated:

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: D

  Choice "d" is correct. Yes - Yes.

  The effective income tax rates for operations for the full year should reflect anticipated foreign tax rates

  and available tax planning alternatives. In addition, the effect of other anticipated tax credits, capital gains

  rates, and foreign tax credits should be included.