10.07 Flashcards
A public entity sells steel for use in construction. One of its customer’s accounts for 43% of sales, and another customer accounts for 40% of sales. What should the entity disclose in its annual financial statements about these two customers?
- The payment terms of accounts receivable due from each of the two customers.
- The amount of the entity’s revenue from each of the two customers.
- The names of the two customers.
- The financial condition of the two customers.
The amount of the entity’s revenue from each of the two customers.
**The entity must disclose the amount of revenues received from a single customer that total 10% or more of total revenues.
Opto Co. is a publicly traded, consolidated enterprise reporting segment information. Which of the following items is a required enterprise-wide disclosure regarding external customers?
- The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues
- The identity of any external customer providing 10% or more of a particular operating segment’s revenue
- The identity of any external customer considered to be “major” by management
- Information on major customers is not required in segment reporting.
The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues
**This is one of the disclosures required in FAS 131. The identity of the customer does not need to be disclosed, but the segment reporting the revenue must be identified. Such a segment would meet one of the three quantitative thresholds for reporting segment information. The three thresholds are 10% of revenue, income, and assets.
Grum Corp., a publicly owned corporation, is subject to the requirements for segment reporting.
In its income statement for the year ending December 31, 2004, Grum reported revenues of $50,000,000, operating expenses of $47,000,000, and net income of $3,000,000. Operating expenses include payroll costs of $15,000,000. Grum’s combined identifiable assets of all industry segments at December 31, 2004 were $40,000,000.
In its 2004 financial statements, Grum should disclose major customer data if sales to any single customer amount to at least
$300,000.
$1,500,000.
$4,000,000.
$5,000,000.
$5,000,000.
**Under FAS 131 (1997), if revenues from transactions with a single customer amount to 10% or more of a firm’s total revenue, that fact must be disclosed, along with the total revenues from each such customer.
For this firm with revenues of $50,000,000, 10% of total revenues is $5,000,000.
What information should a public company present about revenues from foreign operations?
- Disclose separately the amount of sales to unaffiliated customers and the amount of intracompany sales between geographical areas.
- Disclose as a combined amount sales to unaffiliated customers and intracompany sales between geographical areas.
- Disclose separately the amount of sales to unaffiliated customers but not the amount of intracompany sales between geographical areas.
- No disclosure of revenues from foreign operations needs to be reported.
Disclose separately the amount of sales to unaffiliated customers and the amount of intracompany sales between geographical areas.
**Segment disclosure requires that companies disclose the amount of sales to unaffiliated customers by geographical region. They also require disclosure of intracompany sales between geographical areas. These cannot be aggregated but must be reported separately.
How are discontinued operations that occur at midyear initially reported?
- Disclosed only in the notes to the year-end financial statements.
- Included in net income and disclosed in the notes to the year-end financial statements.
- Included in net income and disclosed in the notes to interim financial statements.
- Disclosed only in the notes to interim financial statements.
Included in net income and disclosed in the notes to interim financial statements.
**Discontinued operations are not related to any other interim period. Therefore, it would be erroneous to allocate their financial statement effects to more than one interim period.
Bard Co., a calendar-year corporation, reported income before income tax expense of $10,000 and income tax expense of $1,500 in its interim income statement for the first quarter of the year. Bard had income before income tax expense of $20,000 for the second quarter and an estimated effective annual rate of 25%. What amount should Bard report as income tax expense in its interim income statement for the second quarter? $3,500 $5,000 $6,000 $7,500
$6,000
**Interim income tax expense equals the difference between (1) the total income tax through the end of the interim period at the estimated annual tax rate, and (2) the income tax expense recognized in previous interim periods of the same year. For the second quarter, income tax expense therefore is computed as ($10,000 + $20,000)(.25) − $1,500 = $6,000.
An inventory loss from a permanent market decline of $360,000 occurred in May Year 1. Cox Co. appropriately recorded this loss in May Year 1 after its March 31, Year 1, quarterly report was issued.
What amount of inventory loss should be reported in Cox’s quarterly income statement for the three months ended June 30, Year 1?
$0
$90,000
$180,000
$360,000
$360,000
**Unless temporary, declines in the market value of inventory should be recognized in full in the interim period in which they occur.
They should not be deferred to a later period. In this way, the quarterly financial statement reports a significant event for that quarter.
This is an example of an exception to the overall view adopted by the APB with regard to interim reports: that interim reports should be an integral part of the annual period.
For interim financial reporting, a company’s income tax provision for the second quarter of 20X4 should be determined using the:
- Effective tax rate expected to be applicable for the full year of 2004 as estimated at the end of the first quarter of 20X4.
- Effective tax rate expected to be applicable for the full year of 2004 as estimated at the end of the second quarter of 20X4.
- Effective tax rate expected to be applicable for the second quarter of 20X4.
- Statutory tax rate for 20X4.
Effective tax rate expected to be applicable for the full year of 2004 as estimated at the end of the second quarter of 20X4.
**To ensure the most current information, an estimate of the applicable tax rate for the entire year is made at the end of each quarter (the tax rate estimate includes federal, local, state and foreign taxes). Also at the end of each quarter, the tax for the entire portion of the year elapsed is computed, including previous quarters of that year. Finally, the previous quarters’ tax is subtracted, yielding the income tax for the latest quarter.
ASC 270, Interim Reporting, concluded that interim financial reporting should be viewed primarily in which of the following ways?
- As useful only if activity is spread evenly throughout the year.
- As if the interim period were an annual accounting period.
- As reporting for an integral part of an annual period.
- As reporting under a comprehensive basis of accounting other than GAAP.
As reporting for an integral part of an annual period.
**The fundamental principle underlying interim reporting is that interim reports should be considered an integral part of the annual reporting period. This has important implications for interim reporting. There are exceptions to this principle, however.
When a set of financial statements is prepared using the cash basis or the modified cash basis of accounting, which one of the following is least likely to be an appropriate financial statement title?
- Statement of Cash Receipts and Cash Disbursements.
- Balance Sheet.
- Income Statement.
- Statement of Financial Position.
Income Statement.
**When the cash basis or the modified cash basis of accounting is used, the title Income Statement, which is appropriate when the accrual basis of accounting is used, should be replaced by the title Statement of Cash Receipts and Cash Disbursements. This helps distinguish that the statement is not based on full accrual accounting consistent with U.S. GAAP.
The Private Company Council has issued modified accounting for private companies for what aspect of Goodwill? Goodwill impairment testing. Goodwill amortization. Goodwill measurement. Goodwill reporting.
Goodwill amortization.
**The PCC allows private companies to amortize goodwill over a period to not exceed 10 years.
