Chapter 4

Question 1

Certain disclosures about policies of business entities are commonly required. These items include the following:

Answer 1

Basis of consolidation
Depreciation methods
Amortization of intangible assets (excluding goodwill, which is not amortizable)
Inventory pricing
Recognition of profit on long-term construction-type contracts
Recognition of revenue from franchising and leasing operations
Policy for determining which items are cash equivalents

Question 2

An operating segment has three characteristics:

Answer 2

1. It is a business component of the entity that may earn revenues and incur expenses.
2. Its operating results are regularly reviewed by the entity’s chief operating decision maker (CODM) for the purpose of resource allocation and performance assessment.
3. Its separate financial information is available.

Question 3

Reportable segments are operating segments that must be separately disclosed if one of the following quantitative thresholds is met:

Answer 3

1. Revenue test
2. Asset Test
3. Profit (loss) test

Question 4

Define Revenue Test

Answer 4

Reported revenue, including sales to external customers and inter segment sales or transfers, is at least 10% of the combined revenue (external and internal) of all operating segments.

Question 5

Define Asset Test

Answer 5

Assets are at least 10% of the combined assets of all operating segments

Question 6

Define Profit (loss) test

Answer 6

The absolute amount of reported profit or loss is at least 10% of the greater, in absolute amount, of either the combined reported profit of all operating segments that did not report a loss or the combined reported loss of all operating segments that did report a loss.

Question 7

If 10% or more of revenue is derived from sales to any single customer, what must be reported

Answer 7

(1) that fact,
(2) the amount from each such customer,
(3) the segment(s) reporting the revenues must be disclosed.

Question 8

The best qualitative characteristic of intern financial statements is what?

Answer 8

Timeliness

Question 9

Disclosures should be made in the near term. What is meant by the near term?

Answer 9

within 1 year of the balance sheet date

Question 10

List 4 categories of disclosures

Answer 10

1. Nature of Operations
2. Use of Estimates
3. Concentrations
4. Going Concern

Question 11

Define Recognized Subsequent Events

Answer 11

conditions that existed at the date of the balance sheet that must be recognized

Question 12

Define Unrecognized Subsequent Events

Answer 12

conditions that did not exist at the date of the balance sheet. These events do not require recognition, but some of them do require disclosure.

Question 13

If inventory is written down in the interm statements. Can it be written back up at year end?

Answer 13

yes but only to the original amount.

Question 14

Risk must be disclosed if they are what?

Answer 14

at least reasonably possible in the near term