all operating segments or the absolute measure of its reported profit or loss

All operating segments or the absolute measure of its

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all operating segments; or the absolute measure of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of: o(i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss; or its assets are 10 per cent or more of the combined assets of all operating segments. Segment Revenue Operating Profit (Loss) Assets A 60.1% O 12/24=50% O 57.3% O B 27.5% O 11/24=45.8% O 28.8% O C 6.5% X 4/24=16.7% O 7.1% X D 5.8% X 1/24=4.2% X 6.7% X Total 100% 100% Since segments A, B and C meet the quantitative thresholds, choice c) is the correct answer. Segment D does not meet the quantitative thresholds; therefore, choice d) is incorrect.
2013 Sample Entrance Examination CMA Canada Page 47 35. Answer: a. Since Innov is unable to sell the new product, it cannot be recognized as an asset. Therefore, all costs must be expensed. Choice b) Assumes all costs except advertising can be capitalized. Choice c) Assumes all costs can be capitalized. Choice d) Assumes materials to build and test can be capitalized. 36. Answer: a. It is necessary to apply the recognition criteria to the separately identifiable components of a single transaction in order to reflect the substance of the transaction. Therefore, the revenue from the equipment should be recognized separately from the service agreement. Using the fair value method: Revenue from service agreement = $300,000 x [$80,000/($240,000 + $80,000)] = $75,000 Choice b) Assumes nothing is deferred. Choice c) Assumes fair value of the service contract is deferred. Choice d) Assumes the difference is deferred: $300,000 - $240,000 = $60,000 37. Answer: c. Ending inventory = opening inv. + (purchases + freight - purchase discount) - cost of goods sold (COGS) = sales x (1 - gross profit) COGS = $1.4M x 0.55 = $770,000 Ending inventory = 150,000 + (800,000 + 30,000 - 14,000) - 770,000 = $196,000 Choice a) Deducts freight-in instead of adding it: Ending inventory = $150,000 + ($800,000 - $30,000 - $14,000) - $770,000 = $136,000 Choice b) Freight and discount are not considered: Ending inventory = $150,000 + $800,000 - $770,000 = $180,000 Choice d) 45% is used for COGS instead of 1-45% (55%) COGS = $1.4M x 0.45 = $630,000 Ending inventory = $150,000 + ($800,000 + $30,000 - $14,000) - $630,000 = $336,000
2013 Sample Entrance Examination CMA Canada Page 48 38. Answer: c. Basic shares = {[150,000x(12/12)] + [30,000x(9/12)]} x 1.05 = 181,125 Diluted shares = 181,125 + [40,000x(3/12)] = 191,125 Choice a) Does not consider retroactive treatment of stock dividend: Basic shares = [150,000x(12/12)] + [30,000x(9/12)] = 150,000 + 22,500 = 172,500 Diluted shares = 172,500 + [40,000x(3/12)] = 182,500 Choice b) The stock dividend is weighted: Basic shares = [150,000x(12/12)] + [30,000x(9/12)] + [180,000x0.05x(5/12)] = 150,000 + 22,500 + 3,750 = 176,250 Diluted shares = 176,250 + [40,000x(3/12)] = 186,250 Choice d) Does not use weighted average method: Basic shares = 150,000 + 30,000 = 180,000 Diluted shares = 180,000 + 40,000 = 220,000 39. Answer: b. One of the disclosure principles in the Guidance on Preparation and Disclosure states that the MD&A should be forward-looking. Choice a) This is an objective of the financial statement disclosure notes. Choice c) This is an objective of the auditor’s report. Choice d) This is contained in the financial statement disclosure notes. 40. Answer: b. Rich Corp. must use the equity method. Investment income = 35% of XYZ’s net income = $350,000 Choice a) Assumes nothing is reported since nothing has been received or sold. Choice c) Uses the difference in share price: ($26 - $25) x 400,000 shares = $400,000 Choice d) Sums up the 35% of net income plus change in stock price.

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