Chapter 8 - Answers to Homework Questions

Chapter 8 - Answers to Homework Questions - Chapter 08 -...

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Unformatted text preview: Chapter 08 - Segment and Interim Reporting CHAPTER 08 SEGMENT AND INTERIM REPORTING Chapter Outline I. In the past, consolidation of financial information made the analysis of diversified companies quite difficult. A. The consolidation process tends to obscure the individual characteristics of the various component operations. B. Many groups called for the presentation of disaggregated financial data as a means of enhancing the information content of corporate financial reporting. II. The move toward dissemination of disaggregated information culminated in December 1976 with the release by the FASB of Statement 14 , Financial Reporting for Segments of a Business Enterprise. III. In response to the demand by financial analysts for improvements in segment reporting, the FASB issued Statement 131 , Disclosures about Segments of an Enterprise and Related Information, in June 1997 . Note: SFAS 131 has been incorporated into the FASBs Accounting Standards Codification Section 280 Segment Reporting (FASB ASC 280). A. A so-called management approach is used in which segments are based on the way that management disaggregates the enterprise for making operating decisions; these are referred to as operating segments. B. Operating segments are components of an enterprise which meet three criteria. 1. Engage in business activities and earn revenues and incur expenses. 2. Operating results are regularly reviewed by the chief operating decision-maker to assess performance and make resource allocation decisions. 3. Discrete financial information is available from the internal reporting system. C. Once operating segments have been identified, three quantitative threshold tests are then applied to identify segments of sufficient size to warrant separate disclosure. Any segment meeting even one of these tests is separately reportable. 1. Revenue testsegment revenues, both external and intersegment, are 10 percent or more of the combined revenue, external and intersegment, of all reported operating segments. 2. Profit or loss testsegment profit or loss is 10 percent or more of the greater (in absolute terms) of the combined reported profit of all profitable segments or the combined reported loss of all segments incurring a loss. 3. Asset testsegment assets are 10 percent or more of the combined assets of all operating segments. D. There are several general restrictions on the presentation of operating segments. 1. Separately reported operating segments must generate at least 75 percent of total sales made by the company to outside parties. 2. Ten is suggested as the maximum number of operating segments that should be separately disclosed. If more than ten are reportable, the company should consider combining some operating segments....
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Chapter 8 - Answers to Homework Questions - Chapter 08 -...

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