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What information about revenues by geographic area should a company present?

Disclose separately the amount of sales to unaffiliated customers and the amount of intra-entity sales between geographic areas. No disclosure of revenues from foreign operations need be reported. Disclose as a combined amount sales to unaffiliated customers and intra-entity sales between geographic areas. Disclose separately the amount of sales to unaffiliated customers but not the amount of intraentity sales between geographic areas. Which of the following statements is true for a company that has managers responsible for product and service lines of business and managers responsible for geographic areas (matrix form of organization)? Under U.S. GAAP, the company must base operating segments on geographic areas. Under IFRS, the company must base operating segments on product and service lines of business. Under IFRS, the company must refer to the core principle of IFRS 8 to determine operating segments. Under U.S. GAAP, the company may choose to define operating segments on the basis of either products and services or geographic areas Carson Company has four separate operating segments: Apples Oranges Pears Peaches Sales to outsiders $123,000 $81,000 $95,000 $77,000 Intersegment transfers 31,000 26,000 13,000 18,000 What revenue amount must one customer generate before it must be identified as a major customer? $46,400. $41,200. $37,600. $56,400. Determine Quantitative Threshold for Disclosure of a Major Customer Revenues from a single customer must be disclosed if the amount is 10 percent or more of consolidated sales. Consolidated sales only includes sales to outsiders; intersegment sales are eliminated.

Consolidated

376,000

sales (combined sales to outsiders) 10% criterion Minimum $

10% 37,600

Quatro Corp. engages solely in manufacturing operations. The following data pertain to the operating segments for the current year: Operatin g Segment A $ B C D E F Total $ Total Revenues 10,000,000 $ 8,000,000 6,000,000 3,000,000 4,250,000 1,500,000 32,750,000 $ Assets at 12/31 20,000,000 17,500,000 12,500,000 7,500,000 7,000,000 3,000,000 67,500,000

Profit 1,750,000 $ 1,400,000 1,200,000 550,000 675,000 225,000 5,800,000 $

In its segment information for the current year, how many reportable segments does Quatro have? Three. Four. Five. Six. Revenue Test Combined segment $ revenues 10% criterion Minimum $

32,750,000 10% 3,275,000

Segments meeting testA, B, C, E Since there are no segments with a loss, this test is applied based on total combined segment profit. Profit or Loss Test Combined segment $ Profit 10% criterion Minimum $

5,800,000 10% 580,000

Segments meeting testA, B, C, E Asset Test Combined segment $ assets 10% criterion Minimum $

67,500,000 10% 6,750,000

Segments meeting testA, B, C, D,E Five segments are separately reportable. Mason Company has prepared consolidated financial statements for the current year and is now gathering information in connection with the following five operating segments it has identified. Company Total Books Computers Maps $ 1,547 $121 $ 696 $ 416 421 24 240 39 97 60 0 0 147 0 0 0

Sales to outside parties Intersegment sales Interest income external Interest income intersegment loans

Travel Finance $314 0 118 0 0 $ 37 0 147

Assets Operating expenses Expenses intersegment sales Interest expense external Interest expense intersegment loans Income tax expense (savings) General corporate expenses Unallocated operating costs

3,398 1,460 198 107 177 21 55 80

206 115 70 0 21 12

1,378 818 51 0 71 (41)

248 304 31 0 38 27

326 190 46 0 47 31

1,240 33 0 107 0 (8)

Determine the reportable segments by performing each applicable test. Also describe the procedure utilized to ensure that a sufficient number of segments are being separately disclosed. (Figures are in thousands.) (Enter your answers in thousands. Leave no cells blank - be certain to enter "0" wherever required. Round your percentage answers to 1 decimal place. Input all amounts as positive values. Omit the "$" & "%" signs in your response.) Revenue Test (numbers in thousands) Segment Books Computers Maps Travel Finance Total $ Revenues $
205 936 455 432 184

Percentage
9.3 42.3 20.6 19.5 8.3

% Not reportable % Reportable % Reportable % Reportable % Not reportable %

2,212

100.0

Profit or Loss Test (numbers in thousands) Segment Books Computers Maps Travel Finance Total $ Revenues $
205 936 455 432 184

Expenses $
218 899 400 314 132

Profit $
0 37 55 118 52

Loss $
13 0 0 0 0

Not reportable Reportable Reportable Reportable Reportable

2,212

1,963

262

13

Asset Test (numbers in thousands) Segment Books Computers Maps Travel Finance Total Assets $
206 1,378 248 326 1,240

Percentage
6.1 40.5 .1 7.3 9.6 36.5

% Not reportable % Reportable % Not reportable % Not reportable % Reportable %

3,398

100.0 .1

Test for Sufficient Number of Segments Being Reported Sales to Outsiders $


696 416 314 37

Segments Computers Maps Travel Finance Total

1,463

Explanation:

Profit or Loss Test (numbers in thousands) This test is based on the greater (in absolute amount) of total profit from profitable segments or total loss from segments with a loss. In this case, any segment with profit or loss greater than or equal to $26,200 (10% $262,000) is separately reportable. Test for Sufficient Number of Segments Being Reported Four of Masons segments (computers, maps, travel, and finance) meet at least one of the tests

carried out above. To determine whether a sufficient number of segments is being reported, revenues from unaffiliated parties for these four segments must comprise at least 75% of total consolidated revenues. Consolidated revenues (sales to outside parties and interest incomeexternal) for the company amount to $1,644. These four segments do make up over 75% (actually $1,463 or 89%) of this total. Therefore, this company is presenting disaggregated info Slatter Corporation operates primarily in the United States. However, a few years ago, it opened a plant in Spain to produce merchandise to sell there. This foreign operation has been so successful that during the past 24 months the company started a manufacturing plant in Italy and another in Greece. Financial information for each of these facilities follows: Spain Italy Greece Sales $395,000 $272,000 $463,000 Intersegment transfers 0 0 62,000 Operating expenses 172,000 206,000 190,000 Interest expense 16,000 29,000 19,000 Income taxes 67,000 19,000 34,000 Long-lived assets 191,000 106,000 72,000 The companys domestic (U.S.) operations reported the following information for the current year:

Sales to unaffiliated customers $4,610,000 Intersegment transfers 427,000 Operating expenses 2,410,000 Interest expense 136,000 Income taxes 819,000 Long-lived assets 1,894,000 Slatter has adopted the following criteria for determining the materiality of an individual foreign country: (1)Calculate Sales to unaffiliated customers within a country and as a percent of the consolidated sales. (Round your percentage answers to 1 decimal place. Omit the "$" & "%" signs in your response.)

United States Spain Italy Greece

$ $ $ $

4,610,000 395,000 272,000 463,000

80.3 6.9 4.7 8.1

% % % %

Total

5,740,000

100.0

(2- Calculate Long-Lived within a country and as a percentage of the Long-Lived a) Assets.(Round your percentage answers to 1 decimal place. Omit the "$" & "%" signs in your response.)

United States Spain Italy Greece Total

$ $ $ $ $

1,894,000 191,000 106,000 72,000

83.7 8.4 4.7 3.2

% % % % %

2,263,000

100.0

(2Apply Slatters materiality tests to identify the foreign countries to be reported separately. b) None of the above

Explanation:

(2-b) None of the individual foreign countries meets either the revenue or long-lived asset materiality test, so no foreign country must be reported separately. However, information must be presented for the United States separately and for all foreign countries combined. Noventis Corporation prepared the following estimates for the four quarters of the current year: First Quarter Sales $1,000,000 Cost of goods sold 400,000 Administrative costs 250,000 Advertising costs 0 Executive bonuses 0 Provision for bad debts 0 Annual maintenance 60,000 costs Second Quarter $1,200,000 480,000 155,000 100,000 0 0 0 Third Quarter $1,400,000 550,000 160,000 0 0 0 0 Fourth Quarter $1,600,000 600,000 170,000 0 80,000 52,000 0

Additional Information First-quarter administrative costs include the $100,000 annual insurance premium. Advertising costs paid in the second quarter relate to television advertisements that will be broadcast throughout the entire year. No special items affect income during the year. Noventis estimates an effective income tax rate for the year of 40 percent. (a)Assuming that actual results do not vary from the estimates provided, determine the amount of income to be reported each quarter of the current year. (Omit the "$" sign in your response.) Net income 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter $ $ $ $
211,200 280,200 355,200 439,200

(b)Assume that actual results do not vary from the estimates provided except for that in the third quarter, the estimated annual effective income tax rate is revised downward to 38 percent. Determine the amount of income to be reported each quarter of the current year. (Omit the "$" sign in your response.) Net income 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter $ $ $ $
211,200 280,200 383,420 453,840

Explanation:

(a) Determination of Income by QuarterEstimated Annual Tax Rate 40% 1st Quarter 1,000,000 $ (400,000) (175,000) 2nd Quarter 1,200,000 $ (480,000) (180,000) 3rd Quarter 1,400,000 $ (550,000) (185,000) 4th Quarter 1,600,000 $ (600,000) (195,000)

Sales Cost of goods sold Administr ative costs

Advertisi ng costs Executive bonuses Provision for bad debts Annual maintenanc e costs Pre-tax income Income tax* Net income

(25,000) (20,000) (13,000)

(25,000) (20,000) (13,000)

(25,000) (20,000) (13,000)

(25,000) (20,000) (13,000)

(15,000)

(15,000)

(15,000)

(15,000)

$ 352,000 (140,800)

$ 467,000 (186,800)

$ 592,000 (236,800)

$ 732,000 (292,800)

$ 211,200

$ 280,200

$ 355,200

$ 439,200

*Calculation of income tax by quarter:

Pretax incom e this quarte r

352,00 0

467,00 0

592,00 0

732,00 0

Cum ulativ e pretax incom e Esti mated incom e tax rate Cum ulativ

352,00 0

819,00 0

1,411,0 00

2,143,0 00

40%

40%

40%

40%

140,80 $ 0

327,60 $ 0

564,40 $ 0

857,20 $ 0

e incom e tax to be reco gnize d to date Cum ulativ e incom e tax reco gnize d in earlier period s Inco me tax this quarte r

140,80 0

327,60 0

564,40 0

140,80 0

186,80 0

236,80 0

292,80 0

(b) Determination of Income by QuarterChange in Estimated Annual Tax Rate 1st Quarter Pretax incom e Inco me tax** Net incom e $ 352,000 2nd Quarter $ 467,000 3rd Quarter $ 592,000 4th Quarter $ 732,000

(140,800)

(186,800)

(208,580)

(278,160)

211,200

280,200

383,420

453,840

**Calculation of income tax by quarter:

Pretax incom e this quarte r

352,00 0

467,00 0

592,00 0

732,00 0

Cum ulativ e pretax incom e Esti mated incom e tax rate Cum ulativ e incom e tax to be reco gnize d to date Cum ulativ e incom e tax reco gnize d in earlier period s

352,00 0

819,00 0

1,411,0 00

2,143,0 00

40%

40%

38%

38%

140,80 0

327,60 0

536,18 0

814,34 0

140,80 0

327,60 0

536,18 0

Inco me tax this quarte r

140,80 0

186,80 0

208,58 0

278,16 0

Which of the following could explain why accounting is more conservative in some countries than in others? Accounting is oriented toward stockholders as a major source of financing. Published financial statements are the basis for taxation. Full disclosure in financial statements is emphasized. A common law legal system is used. Which of the following is not a problem caused by differences in financial reporting practices

across countries? Comparisons of financial ratios across firms in different countries may not be meaningful. Consolidation of financial statements by firms with foreign operations is more difficult. Firms incur additional costs when attempting to obtain financing in foreign countries. Firms face double taxation on income earned by foreign operations. What is the so-called Norwalk Agreement? An agreement between the U.S. FASB and the U.K. Accounting Standards Board to converge their respective accounting standards as soon as practicable. An agreement between the FASB and the IASB to make their existing standards compatible as soon as practicable and to work together to ensure compatibility in the future. An agreement between the FASB and SEC to allow foreign companies to use IFRSs in their filing of financial statements with the SEC. An agreement between the SEC chairman and the EU Internal Market commissioner to allow EU companies to list securities in the United States without providing a U.S. GAAP reconciliation. Under the SECs IFRS Roadmap, which of the following is a criterion that would make a U.S. company eligible for the early use of IFRS? The company is in one of the 10 largest industries in the world. The company is one of the 50 largest companies in the world. The company is one of the 20 largest publicly traded companies in the United States. The company is one of the 20 largest publicly traded companies in its industry worldwide. In which of the following areas does the IASB allow firms to choose between two acceptable treatments? Presenting gains and losses as extraordinary on the face of the income statement. Recognizing development costs that meet criteria for capitalization as an asset. Measuring property, plant, and equipment subsequent to acquisition. Recognizing past service costs related to pension benefits that have already vested. Lisali Company gathered the following information related to inventory that it owned on December 31, 2011:

Historical cost Replacement cost

$100,000 95,000

Net realizable value Normal profit margin

98,000 20%

(a)Determine the amount at which Lisali should carry inventory on the December 31, 2011, balance sheet and the amount, if any, that should be reported in net income related to this inventory using U.S. GAAP. (Loss amounts should be indicated with a minus sign. Omit the "$" sign in your response.) U.S. GAAP Inventory Net income (loss) $ $
95,000 -5,000

IFRS $ $
98,000 -2,000

(b)Determine the adjustments that Lisali would make in 2011 to reconcile net income and stockholders' equity under U.S. GAAP to IFRS. (Input all amounts as positive values. Omit the "$" sign in your response.) 2011 Adjustments in U.S. GAAP 3,000 Add $ Add $
3,000

Net income Stockholders' equity

Explanation:

(a) Under U.S. GAAP, the company reports inventory on the balance sheet at the lower of cost or market, where market is defined as replacement cost (with net realizable value as a ceiling and net realizable value less a normal profit as a floor). In this case, inventory will be written down to replacement cost and reported on the December 31, 2011 balance sheet at $95,000. A $5,000 loss will be included in 2011 income. In accordance with IAS 2, the company reports inventory on the balance sheet at the lower of cost or net realizable value. As a result, inventory will be reported on the December 31, 2011 balance sheet at its net realizable value of $98,000 and a loss on writedown of inventory of $2,000 will be reflected in 2011 net income. (b) As a result of the differing amounts of inventory loss recognized under U.S. GAAP and IFRS, Lisali will add $3,000 to U.S. GAAP income to reconcile to IFRS income, and will add $3,000 to U.S. GAAP stockholders' equity to reconcile to IFRS stockholders' equity. Moxie Corporation incurs research and development costs of $500,000 in 2011, 30 percent of which relates to development activities subsequent to certain criteria having been met that suggest that an intangible asset has been created. The newly developed product is brought to market in January 2012 and is expected to generate sales revenue for 10 years.

(a)Determine the amount Moxie should recognize as research and development expense in 2011 under (1) U.S. GAAP and (2) IFRS. (Omit the "$" sign in your response.) U.S. GAAP Research and development expense $
500,000

IFRS $
350,000

(b)Determine the adjustments that Moxie would make in 2011 and 2012 to reconcile net income and stockholders' equity under U.S. GAAP to IFRS. (Input all amounts as positive values. Omit the "$" sign in your response.) 2011 Adjustments in U.S. GAAP 150,000 Add $ Add $
150,000

Net income Stockholders' equity

Net income Stockholders' equity

2012 Adjustments in U.S. GAAP 15,000 Less $ Add $


135,000

Explanation:

(a) Under U.S. GAAP, $500,000 of research and development costs would be expensed in 2011. In accordance with IAS 38, $350,000 [$500,000 70%] of research and development costs would be expensed in 2011, and $150,000 [$500,000 30%] of development costs would be capitalized as an intangible asset. The intangible asset would be amortized over its useful life of ten years, but only beginning in 2012 when the newly developed product is brought to market. (b) In 2011, $150,000 would be added to U.S. GAAP net income to reconcile to IFRS and the same amount would be added to U.S. GAAP stockholders' equity. In 2012, the company would recognize $15,000 [$150,000 / 10 years] of amortization expense on the deferred development costs under IFRS that would not be recognized under U.S. GAAP. In 2012, $15,000 would be subtracted from U.S. GAAP net income to reconcile to IFRS net income. The net adjustment to reconcile from U.S. GAAP stockholders equity to IFRS at December 31, 2012 would be $135,000, the sum of the $150,000 smaller expense under IFRS in 2011 and the $15,000 larger expense under IFRS in 2012. $135,000 would be added to U.S. GAAP stockholders' equity at December 31, 2012 to reconcile to IFRS. Ramshare Company acquired equipment at the beginning of 2011 at a cost of $100,000. The equipment has a five-year life with no expected salvage value and is depreciated on a straightline basis. At December 31, 2011, Ramshare compiled the following information related to this

equipment:

Expected future cash flows from use of the equipment Present value of expected future cash flows from use of the equipment Fair value (net selling price), less costs to dispose

$ 85,000 75,000 72,000

(a)Determine the amount at which Ramshare should carry this equipment on its December 31, 2011, balance sheet and the amount, if any, that it should report in net income related to this equipment using (1) U.S. GAAP and (2) IFRS. (Omit the "$" sign in your response.) U.S. GAAP Amount $
80,000

IFRS $
75,000

(b)Determine the adjustments that Ramshare would make in 2011 and 2012 to reconcile net income and stockholders equity under U.S. GAAP to IFRS. Ignore the possibility of any additional impairment at the end of 2012. (Input all amounts as positive values. Omit the "$" sign in your response.) 2011 Adjustments in U.S. GAAP 5,000 Less $ Less $
5,000

Net income Stockholders' equity

Net income Stockholders' equity

2012 Adjustments in U.S. GAAP 1,250 Add $ Less $


3,750

Explanation:

(a) Under U.S. GAAP, an asset is impaired when its carrying value exceeds the expected future cash flows (undiscounted) to be derived from use of the asset. Expected future cash flows are $85,000, which exceeds the carrying value of $80,000, so the asset is not impaired. Depreciation expense for the year is $20,000 [$100,000 / 5 years], and the equipment will be carried on the December 31, 2011 balance sheet at $80,000. In accordance with IAS 36, an asset is impaired when its carrying value exceeds its recoverable amount, which is the greater of (a) value in use (present value of expected future cash flows), and (b) net selling price, less costs to dispose. The carrying value of the equipment at December 31, 2011 is $80,000; original cost of $100,000 less accumulated depreciation of $20,000 [$100,000 / 5 years]. The asset's recoverable amount is $75,000 (the higher of value in use of

$75,000 and fair value of $72,000), so the asset is impaired. An impairment loss of $5,000 [$80,000 $75,000] would be recognized at the end of 2011, in addition to depreciation expense for the year of $20,000. The equipment will be carried on the December 31, 2011 balance sheet at $75,000. (b) An impairment loss of $5,000 was recognized in 2011 under IFRS but not under U.S. GAAP. Therefore, $5,000 must be subtracted from U.S. GAAP net income to reconcile to U.S. GAAP net income in 2011. The same amount would be subtracted from U.S. GAAP stockholders equity at December 31, 2011 to reconcile to IFRS. In 2012, depreciation under IFRS will be $18,750 [$75,000 / 4 years], whereas depreciation under U.S. GAAP is $20,000. $1,250 would be added to U.S. GAAP net income to reconcile to IFRS net income in 2012. To reconcile stockholders' equity to IFRS at December 31, 2012, $3,750 must be subtracted from U.S. GAAP stockholders' equity. This is the difference between the impairment loss of $5,000 in 2011 taken under IFRS and the difference in depreciation expense recognized under the two sets of standards in 2012. It also is equal to the difference in the carrying value of the equipment at December 31, 2012 under the two sets of accounting rules: IFRS $ 100,000 (20,000) (5,000) U.S. GAAP $ 100,000 (20,000) 0

Cost Depreciation, 2011 Impairment loss, 2011 Carrying value, 12/31/11 Depreciation, 2012 Carrying value, 12/31/12

75,000 (18,750)

80,000 (20,000)

56,250

60,000

What is the difference between Regulation SK and Regulation SX? Regulation SK establishes reporting requirements for companies smaller than a certain size whereas Regulation SX is directed toward companies larger than that size. Regulation SK establishes reporting requirements for publicly held companies whereas Regulation SX is directed toward private companies. Regulation SK establishes regulations for nonfinancial information filed with the SEC whereas Regulation SX prescribes the form and content of financial statements included in SEC filings. Regulation SK establishes reporting requirements for companies in their initial issuance of securities whereas Regulation SX is directed toward the subsequent issuance of securities. Regulation S-K addresses non-financial information filed with the SEC while Regulation S-X addresses the form and content of financial documentation filed with the SEC. Which of the following is a requirement of the Sarbanes-Oxley Act of 2002? Registration of all auditing firms with the Public Company Accounting Oversight Board. Overall assessment of the work of the SEC each year. Annual inspection of all auditing firms registered with the Public Company Accounting Oversight Board. A monetary fee assessed on organizations issuing securities. Not all auditing firms are required to register with the PCAOB, only those firms that prepare, issue, or participate in the preparation of an audit report for an issuer. What is a registration statement? An annual filing made with the New York Stock Exchange. A filing made by a company with the SEC to indicate that a significant change has occurred.

A required filing with the SEC before a large amount of stock can be obtained by an inside party. A statement that must be filed with the SEC before a company can begin an initial offering of securities to the public. The 1933 Act deals with the requirements for registration of a security prior to its initial offerin What is a prospectus? The first part of a registration statement that a company must furnish to all potential buyers of a new security. A document attached to a Form 8K. A potential stockholder as defined by Regulation SK. A document a company files with the SEC prior to filing a registration statement. The prospectus must be furnished to all potential new security buyers and is provided to the SEC as part of the registration statement filing. eBook Linkreferences