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Chapter 24: Question 7CA_a (page 1456)

Washington—The Securities and Exchange Commission staff issued guidelines for companies grappling with the problem of dividing up their business into industry segments for their annual reports. An industry segment is defined by the Financial Accounting Standards Board as a part of an enterprise engaged in providing a product or service or a group of related products or services primarily to unaffiliated customers for a profit. Although conceding that the process is a “subjective task” that “to a considerable extent, depends on the judgment of management,” the SEC staff said companies should consider . . . various factors . . . to determine whether products and services should be grouped together or reported as segments.

Instructions

  1. What does financial reporting for segments of a business enterprise involve?

Short Answer

Expert verified

Financial reporting for segments of a business enterprise involves reporting financial information on a less-than-total enterprise basis.

Step by step solution

01

Meaning of Financial Reporting

Financial reporting refers to the collection of official and required communications that corporations must provide(balance sheet, income statement, prognosis, and so on). Companies listed on the stock exchange (at least the most important ones) must adhere to a quarterly release pace of financial data.

02

Explaining the involvement of official reporting for segments of a business enterprise.

Financial reporting for segments of a business entity involves the reporting of financial data on a basis other than that of the overall business enterprise. These parts can be divided into divisions, branches, or subsidiaries based on organizational lines.

Segmentation may be based on areas of economic activity such as company territories, product lines, type of services provided, markets, customer categories, or geographic location. A corporation may employ more than one of the above segmentation grounds in addition to these various unique definitions of segments of an enterprise.

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Most popular questions from this chapter

Identifiable assets for the seven industry segments of Foley Corporation are:

Penley $ 500 Cheng 200

Konami 550 Takuhi 150

KSC 250 Molina 475

Red Moon 400

Based only on the identifiable assets test, which industry segments are reportable?

Foley Corporation has seven industry segments with total revenues as follows.

Penley \(600 Cheng \)225

Konami 650 Takuhi 200

KSC 250 Molina 700

Red Moon 275

Based only on the revenues test, which industry segments are reportable?

What are diversified companies? What accounting problems are related to diversified companies?

The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period. In general, the results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year. The Board has concluded, however, that certain accounting principles and practices followed for annual reporting purposes may require modification at interim reporting dates so that the reported results for the interim period may better relate to the results of operations for the annual period.

Instructions

The following six independent cases present how accounting facts might be reported on an individual company’s interim financial reports. For each of these cases, state whether the method proposed to be used for interim reporting would be acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.

a) J. D. Long Company takes a physical inventory at year-end for annual financial statement purposes. Inventory and cost of sales reported in the interim quarterly statements are based on estimated gross profit rates, because a physical inventory would result in a cessation of operations. Long Company does have reliable perpetual inventory records.

Tina Bailey, a student of intermediate accounting, was heard to remark after a class discussion on segment reporting, “All this is very confusing to me. First we are told that there is merit in presenting the consolidated results, and now we are told that it is better to show segmental results. I wish they would make up their minds.” Evaluate this comment.

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