ExpertHard1 markMultiple Choice
CPA · Question 9 · Area 1: Financial Reporting
A company reports the following for its operating segments:<br/>- Segment A: Revenue $400, Profit $50, Assets $1,000<br/>- Segment B: Revenue $100, Loss ($30), Assets $200<br/>- Segment C: Revenue $50, Profit $5, Assets $100<br/>- Segment D: Revenue $40, Loss ($40), Assets $50<br/><br/>Total Revenue = $590. Total Assets = $1,350.<br/>Which segments are reportable based on the quantitative thresholds?
A company reports the following for its operating segments:<br/>- Segment A: Revenue $400, Profit $50, Assets $1,000<br/>- Segment B: Revenue $100, Loss ($30), Assets $200<br/>- Segment C: Revenue $50, Profit $5, Assets $100<br/>- Segment D: Revenue $40, Loss ($40), Assets $50<br/><br/>Total Revenue = $590. Total Assets = $1,350.<br/>Which segments are reportable based on the quantitative thresholds?
Answer options:
A.
A, B, and D
B.
A and B only
C.
A only
D.
All segments
How to approach this question
Apply 10% tests: 1. Revenue (Internal + External). 2. Profit/Loss (compare absolute profit sum vs absolute loss sum, take 10% of the larger). 3. Assets. If a segment meets ANY of the three, it is reportable.
Full Answer
A.A, B, and D✓ Correct
A
The critical test here is the Profit/Loss test. Combined Profit = $55. Combined Loss = $70. The greater is $70. Threshold is $7. Segment A ($50), B ($30), and D ($40) all exceed $7 in absolute terms. Therefore A, B, and D are reportable.
Common mistakes
Using the net profit of the whole company as the base for the profit test; ignoring the loss segments.
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