INTERMEDIATE ACCOUNTING

MIDTERM EXAMINATION

ANSWER THE FOLLOWING QUESTIONS. SHOW YOUR SOLUTIONS.

PART 1

PROBLEM 1:

Relief Company assesses performance and makes operating decisions using

the following information for reportable segments:

Total revenue 9,250,000

Total profit 830,000

Included in the total profit is interest expense 100,000. In additions, the

entity has 15,000 of interest income for reportable segments that is not
included in the reports used internally.

For purposes of segment reporting, what amount should be reported as

segment total profit?
_____________________

PROBLEM 2:

Cool Company has three lines of business, each of which was determined to
be reportable segment.

The entity sales aggregated 7,500,000 in the current year, of which

Segment No. 1 contributed 40%.

Traceable costs were 1,750,000 for Segment No. 1 out of a total of

5,000,000 for the entity as a whole.

For external reporting, the entity allocated common costs of 1,500,000

based on the ratio of a segment’s income before common costs to be total
income before common costs.

In the financial statements for the current year, what amount should be
reported as profit for Segment No. 1?
_____________________

PROBLEM 3:
Graffiti Company discloses supplemental operating segment information.
The following information is available for the current year:

Segment Sales Traceable expenses

X 5,000,000 3,000,000
Y 4,000,000 2,500,000
Z 3,000,000 1,500,000
12,000,000 7,000,000

Additional expenses are as follows:

Indirect expenses 1,800,000

General corporate expenses 1,200,000
Interest expense 600,000
Income tax expense 400,000

The interest expense and income tax expense are regularly reviewed by the
chief operating decision maker as a measure of profit and loss.

Appropriate common expenses are allocated to segments based on the

ration of a segment’s sales to total sales.

What is Segment Z’s profit for the current year?

_________________

PROBLEM 4:

On January 1, 2017, Reeve Company discovered that it had incorrectly

expensed a 2,100,000 machine purchased on January 1, 2014.

The entity estimated the machine’s original useful life to be 10 years and
the residual value at 100,000.

The entity used the straight line method of depreciation and is subject to a
30% income tax rate.

In the December 31, 2017 financial statements, what amount should be

reported as a prior period error?
_____________________

PROBLEM 5:
Harbor Company reported the following events during 2017:
 It was decided to write off 800,000 from inventory which was over two
years old as it was obsolete.
 Sales of 600,000 had been omitted from the financial statements for
the year ended December 31, 2016.

What total amount should be reported as prior period error in the financial
statements for the year ended December 31, 2017? _________________