Beams9eSM_Ch14 - Chapter 14 SEGMENT AND INTERIM FINANCIAL...

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Chapter 14 SEGMENT AND INTERIM FINANCIAL REPORTING Answers to Questions 1 An operating segment is a component of an enterprise: (1) that engages in business activities from which it may earn revenues and incur expenses, either internal or external; (2) whose operating results are regularly reviewed by the enterprise’s chief operating decision maker and (3) for which discrete financial information is available. 2 A reportable segment is an operating segment, either single or aggregated, for which information has to be reported under FASB Statement No. 131 . An operating segment is a reportable segment if (a) its revenue is 10 percent or more of the combined revenue of all operating segments, (b) its absolute operating profit or loss is 10 percent or more of the greater of combined operating profit of all segments that have operating profit or combined operating losses of all segments that have losses, or (c) its identifiable assets are 10 percent or more of the combined identifiable assets of all operating segments. 3 Segments not meeting one of these tests are subject to a reevaluation, and possible aggregation, if the combined revenue from sales to external customers of all reportable segments is less than 75 percent of consolidated revenue. Segments that are not reportable segments are combined with other business activities and reported under an “all other” category. 4 The 10 percent revenue test applies to the $480,000. Revenue for purposes of FASB Statement No. 131 includes revenue from both external and intersegment customers. 5 An industry segment is a reportable segment under the 10 percent operating profit test if its operating profit or loss, in absolute amount, equals or is greater than the greater of combined operating profits for all operating segments having operating profits or combined operating losses for all operating segments having operating losses. 6 A segment is a reportable segment under the 10 percent asset test if its assets are 10 percent or more of the combined assets of all operating segments. The allocation of general corporate assets depends on the internal operations of the enterprise. The key is the asset figure given to the chief operating decision maker on which he or she evaluates performance. If corporate assets are not allocated, they become part of the reconciliation between the reportable segments’ assets and consolidated assets. 7 A segment is a reportable segment under the 10 percent revenue test if its intersegment and external sales is 10 percent or more of the combined intersegment and external sales of all the operating segments. 8 No. If the combined revenue from sales to external customers is less than 75 percent of total consolidated revenues, additional operating segments must be identified as reportable segments until the 75 percent test is met. Either some of the remaining segments must be aggregated, if they meet the aggregation criteria, so that the combined segment meets the materiality criteria of 10%, or one or more of the five
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Beams9eSM_Ch14 - Chapter 14 SEGMENT AND INTERIM FINANCIAL...

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