Monica A.

Mangoba

BSA 3-3Y1-1

CHAPTER 9

Problem 9-7 (AICPA Adapted)

Bell Company reported P950,000 net income for the quarter ended September 30, 2021 which included
the following after-tax items:

* A P600,000 gain from expropriation realized on April 30, 2021 was allocated equally to the second,
third and fourth quarters of 2021.

A P150,000 loss resulting from a change in inventory valuation method was recognized on August 1,
2021.

* In addition, the entity paid P480,000 on February 1, 2021 for 2021 calendar-year property taxes. Of
this amount, P120,000 was allocated to the third quarter of 2⁶021.

For the quarter ended September 30, 2021, what amount should be reported as net income?

a. 1,200,000

b. 1,400,000

c. 950,000

d. 900,000

Solution:

pet income 950,000

Gain from expropriation (600,000/3) (200,000)

Change in accounting policy 150,000

Total net income 900,000

Problem 9-12 (IFRS)

Sigma Company has a financial reporting year that begins July 1, 2021 and ends on June 30, 2022 The tax
year ends every December 31.

The entity reports quarterly for interim purposes and the quarterly income is P1,000,000 for the first
quarter, P1,500,000 for the second quarter, P2,500,000 for the third quarter and P4,000,000 for the
fourth quarter.
The income tax rate is 30% for 2021 and 25% for 2022.

What is the total income tax expense for the year ended June 30, 2022?

a. 2,375,000

b. 2,700,000

c. 2,250,000

d. 1,625,000

Solution:

First quarter (30%×1006000) 300,000

Second quarter (30%x1,500,000) 450,000

Third quarter (25%×2,500,000) 625,000

Fourth quarter (25% x 4,000,000) 1,000,000

Total income tay expense 2,375,000

Problem 9-15 (AICPA Adapted)

At the beginning of current year, Cambridge Company entered into a P20,000,000 long-term fixed price
contract to construct a factory building.

The entity accounted for this contract under the percentage of completion at the end of each quarter.

Quarter Percentage of completion Estimated cost

1 10% 15,000,000

2 10% 15,000,000

3 25% 19,200,000

4 25% 19,200,000

No work was performed in the second and fourth quarters.

1. What amount of income should be reported in the first quarter?

a. 2,000,000

b. 200,000

c. 500,000
d. 0

Solution:

First quarter -gross income (20,000,000 -15,000,000) 5,000,000

Percentage of completion 10%

Income earned 500,000

2. What amount of income should be reported in the second quarter?

a. 500,000

b. 250,000

c. 750,000

d. 0

Solution:

No work performed

3. What amount of income or loss should be reported in the third quarter?

a. 200,000 income

b. 200,000 loss

c. 300,000 income

d. 300,000 loss

Solution:

Third quarter - gross income (20,000,000 -19,200,000) 800,000

Percentage of completion 25%

Cumulative income 200,000

Income earned - first quar (500,000)

Loss in third quarter 300,000

Income earned 500,000

4. What amount of income should be reported in the fourth

a. 800,000

b. 400,000

c. 200,000

d. 0

Solution:

No work performed

Problem 9-20 Multiple choice (AICPA Adapted)

1. Interim financial statements are usually presented on a

a. Monthly basis

b. Quarterly basis

c. Semiannual basis

d. Nine-month basis

2. For interim reporting, an inventory loss from a market decline in the second quarter shall be
recognized as a loss

a. In the fourth quarter

b. Proportionately in each of the second, third and fourth quarters

c. Proportionately in each of the first, second, third and fourth quarters

d. In the second quarter

3. For external reporting purposes, it is appropriate to use estimated gross profit rate to determine the
cost of goods sold for

a. Interim reporting

b. Year-end reporting

c. Interim reporting and year-end reporting

d. Neither interim reporting nor year-end reporting

4. For interim financial reporting, an expropriation gain occurring in the second quarter shall be
a. Recognized ratably over the last three quarters

b. Recognized ratably over all four quarters with the first quarter being restated

c. Recognized in the second quarter

d. Disclosed in the second quarter

5. For interim financial reporting, the income tax expense for the second quarter should be computed by
using the

a. Statutory tax rate for the year.

b. Effective tax rate expected to be applicable for the second quarter.

c. Effective tax rate expected to be applicable for the full year as estimated at the end of the first
quarter.

d. Effective tax rate expected to be applicable for the full year as estimated at the end of the second
quarter.

6. Advertising costs incurred shall be deferred to provide an appropriate expense in each period for

a. Interim reporting

b. Year-end reporting

c. Interim reporting and year-end reporting

d. Neither interim reporting nor year-end reporting

7. Due to a decline in market price in the second quarter, an entity incurred an inventory loss. The
market price is expected to return to previous level by the end of the year. At the end of the year, the
decline had not reversed. When should the loss be reported in the interim income

statement?

a. Ratably over the second, third and fourth quarters

b. Ratably over the third and fourth quarters

c. In the second quarter

d. In the fourth quarter

8. Conceptually, interim financial statements can be described as emphasizing

a. Timeliness over reliability

c. Relevance over comparability

d. Comparability over neutrality

9. Interim financial reporting should be viewed

a. As a special type of reporting that need not follow International Financial Reporting Standards.

b. As useful only if activity is evenly spread throughout the year so that estimates are unnecessary.

c. As reporting for an integral part of an annual period.

d. As reporting for a separate accounting period.

10. Which statement about interim reporting is true?

a. All entities that issue an annual report must issue interim financial report.

b. The integral view is the appropriate approach in preparing interim financial report.

c. A complete set of financial statements must be presented for an interim period.

d. The same accounting principles used for the annual report should be employed for interim report.

CHAPTER 10

Problem 10-7 (AICPA Adapted)

Graf 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

Additional expenses

Indirect segment expenses 1,800,000

General corporate expenses 1,200,000

Interest expense 600,000

Income tax expense 400,000

Appropriate common expenses are allocated to segments based on the ratio of a segment's sales to
total sales.

What is Segment Z's operating profit?

a. 900,000

b. 950,000

c. 800,000

d. 500,000

Solution:

sale 3,000,000

traceable expenses (1,500,000)

Indirect expenses (25 % × 1,800,000) (450,000)

General Corporate expenses (25 %x1,200,000) (300,000)

Interest expense (25% x 600,000) (150,000)

Income tax expense (25%x400, 000) (100,000)

500,000

Problem 10-9 (AICPA Adapted)

Hyde Company has three reportable segments. Common costs are appropriately allocated on the basis
of sales.

In the current year, Segment A had sales of P3,000,000, which was 25% of Hyde's total sales, and had
traceable costs of P1,900,000.

Segment A incurred interest expense of P300,000 in the current year. Interest expense is included in the
measure of profit or loss.

In the current year, the entity incurred segment costs of P500,000 that were not directly traceable to
any of the divisions.

What amount should be reported as Segment A's profit forthe current year?

a. 875,000
b. 900,000

C. 975,000

d. 675,000

Solution:

Sales -Segment A 3,000,000

Expenses:

Traceable Coot 1,900,000

Allocated indirect cost (25 4×500,000) 125,000

Interest expense 300,000 2,325,000

Segmen profit 675,000

Problem 10-10 (IAA)

Eagle Company operates in several different industries. Total sales for the entity totaled P14,000,000,
and total common costs amounted to P6,500,000 for the current year.

For internal reporting purposes, the entity allocates common costs based on the ratio of a segment's
sales to total sales.

Contribution to total sales Costs specific to the segment

Segment 1 25% 1,100,000

2 12% 1,000,000

3 31% 1,300,000

4 23% 880,000

5 9% 400,000

What is the operating profit of Segment 1?

a. 3,500,000

b. 1,875,000

C. 2,400,000

d. 775,000
 Solution:

Sales-Segment 1 (25%x 14,000,000) 3,500,000

Specific cost Segment 1 (1,100,000)

Allocated common costs (25%×6,500,000) (1,625,000)

Operating profit 775,000

Problem 10-12 (AICPA Adapted)

Taylor Company assesses performance and makes operating decisions using the following information
for the reportable segments:

Total revenue 9,000,000

Total profit and loss 1,500,000

The total profit and loss included intersegment profit of P300,000. In addition, the entity had P100,000
of common costs for the reportable segments that are not allocated in reports provided to the chief
operating decision maker.

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

a. 1,400,000

b. 1,200,000

c. 1,800,000

d. 1,500,000

Solution:

Total profit or loss 1500,000

Common Cost (100,000)

Segment profit 1,400,000

Problem 10-18 Multiple choice (PFRS 8)

1. If a financial report contains both the consolidated financial statements of a parent and the parent's
separate financial statements, segment information is required in

a. The separate financial statements only

c.Both the separate and consolidated financial statements

d. Neither the separate nor the consolidated financial statements

2. An operating segment is a component of an entity

a. That engages in business activities from which it may earn revenue and incur expenses.

b. Whose operating results are regularly reviewed by the entity's chief operating decision maker.

c. For which discrete information is available.

d. All of these characterize an operating segment.

3. Which quantitative threshold is not a requirement in qualifying a reportable segment?

a. The segment revenue, both external and internal, is 10% or more of the combined external and
internal revenue of all operating segments.

b. The segment profit or loss is 10% or more of the greater between the combined profit of profitable
segments and combined loss of unprofitable segments.

c. The segment assets are 10% or more of the combined assets of all operating segments.

d. The segment assets are 20% or more of the combined assets of all operating segments.

4. An operating segment is considered reportable when any of the following conditions is met, except

a. Segment revenue is 10% or more of the combined revenue of all of the entity's segments.

b. Segment assets are 10% or more of the combined assets of all segments.

c. Segment liabilities are 10% or more of the combined liabilities of all segments.

d. Segment's profit or loss is 10% or more of the combined profit of all segments that did not incur a
loss.

5. Which statement is true concerning the 75% overall size test for reportable segments?

a. The total external and internal revenue of all reportable segments is 75% or more of the entity's
external revenue:

b. The total external revenue of all reportable segments is 75% or more of the entity's external and
internal revenue.

c. The total external revenue of all reportable segments is 75% or more of the entity's external revenue.
d. The total internal revenue of all reportable segments is 75% or more of the entity's internal revenue.

6. The term chief operating decision maker

a. Refers to a manager with a specific title.

b. Must be disclosed by title in the financial reporting for segments.

c. Must be described in the disclosures for the financial reporting for segments.

d. Refers to a function of allocating resources to the operating segments and assessing their
performance.

7. Which statement is not true with respect to a chief operating decision maker?

a. The term chief operating decision maker identifies a function and not necessarily a manager with a
specific title.

b. In some cases, the chief operating decision maker could be the chief operating officer.

c. The board of directors acting collectively could qualify as the chief operating decision maker.

d. The chief internal auditor would generally qualify as chief operating decision maker.

8. In financial reporting for operating segments, an entity shall disclose all of the following, except

a. Type of product and service from which each reportable segment derives revenue.

b. The title of the chief operating decision maker.

c. Factors used to identify the reportable segments.

d. The basis of measurement of segment profit or loss ,and segment assets.

9. Operating segments that do not meet any of the quantitative thresholds

a. Cannot be considered reportable.

b. May be considered reportable and separately disclosed if management believes that information
about the segment would be useful to the users of the financial statements.

c. May be considered reportable and separately disclosed if the information is for internal use.

d. May be considered reportable and separately disclosed if this is the practice within the economic
environment in which the entity operates.

10. Segment reporting requires that an entity should provide reconciliations of segment information.
Which is not a required reconciliation?
a. The total of the reportable segments' revenue to the entity revenue

b. The total of the reportable segments' profit or loss to the entity profit or loss before tax expense and
discontinued operations

c. The total number of major customers of all segments to the total number of major customers of the
entity

d. The total of the reportable segments' assets to the entity assets