What is the objective of segment reporting according to FASB?
- better understand the enterprise’s performance
- better assess its prospects for future net cash flows
- make more informed judgments about the enterprise as a whole
Operating segment
- engages in business activities from which it recognizes revenues and incurs expenses
- the CEO regularly reviews its operating results
- its discrete financial information is available
What criteria must management consider for aggregation?
- the nature of the products
- the nature of the production process
- the type or class of customer
- the distribution methods
- the nature of the regulatory environment
What are the three tests for identifying operating segments that are significant enough to justify separate disclosure?
A revenue test, a profit or loss test, an asset test
Revenue test
segment revenues, both external and intersegment are 10 percent or more of the combined revenue, internal and external
The profit or loss test
segment profit or loss is more of the combined reported profit of all profitable segments
the asset test
segment assets are 10 percent or more of the combined assets of all operating segments
How should a company report a newly qualified segment for disclosure?
Prior period segment data presented for comparative purposes must be restated to reflect the newly reported segment as a separate segment
What percentage of operating segments need to be disclosed?
A sufficient number of segments is presumed to be included only if the combined segment sales to unaffiliated customers are at least 75 percent of total company consolidated sales made to outsiders
EBITDA
earnings before interest, taxes, depreciation, and amortization
What items do not have to be allocated to individual segments?
inventory on a LIFO basis when they include more than one segment, companywide pension plans, and litigation obligations
What items must be explained in addition to the measurement of profit or loss for segments?
- segment profit or loss and consolidated income before tax
- segment assets and consolidated assets
- segment profit or loss and segment assets
For companies with international activities these two items must be reported
- revenues from external customers
- long lived assets must be reported for the domestic country and all foreign countries in total
How often does the SEC require publicly traded companies in the US to provide financial statements?
On a quarterly basis
Discrete period approach
the company reports entire bonus as an expense in December, reducing fourth-quarter income only
Integral part of annual period
a company accrues a portion of the bonus to be paid in December as an expense in each of the first three quarters of the year
LIFO Liquidation
number of units sold exceeds the number of units added to inventory during the period. This results in a high gross profit, must adjust cost of goods sold with a journal entry.
Lower of Cost or NRV
the NRV of inventory is less than the cost, if the company believes that this is recoverable by year end then continue to carry at cost
Standard costing
report unplanned variances at the end of the interim period in the same fashion as it would in the annual financials
Minimum Disclosures in Interim Reports
- Sales or gross revenues
- basic or diluted earnings per share
- seasonal revenues and expenses
- significant estimates or provisions in income taxes
-disposal of a component of the business and unusual items - contingent items
-changes in accounting principal - significant changes in financial position
In accounting for foreign currency transactions, which of the following approaches is used in the United States?
two transaction perspective: accrue foreign exchange gains and losses
On October 1, Tile Co., a US Company, purchased products from Azulejo, a Portuguese company with payment due on December 1. If tile’s operating income included no foreign exchange gain or loss, the transaction could have…
Been denominated in U.S dollars
On January 1, 2020, Mifflin Company borrowed 200,000 euros from a foreign lender evidenced by an interest-bearing note due on July 1, 2021. The note is denominated in euros. The U.S dollar equivalent of the note principal are as follows:
July 1, 2020: 225,000
December 31,2020: 220,000
July 1, 2021: 210,000
In its 2021 income statement, what amount should mifflin include as a foreign exchange gain or loss on the note?
C. 10,000 gain
Grace Co. had a Chinese yuan payable resulting from imports from China and a Mexican peso receivable resulting from exports to Mexico. Grace recorded foreign exchange losses related to both its yen payable and peso receivable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date?
B. Yaun: increase, Peso: Decrease
