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Studocu Platform Overview
Operating Segment Reporting
Segment Profit or Loss
Segment X Segment Y Others Total Sales 24,000,000 27,000,000 9,000, 60,000,000 Costs of goods sold (9,800,000) (14,000,000) (4,200,000) (28,000,000) Gross income 14,200,000 13,000,000 4,800,000 32,000, Expenses (5,600,000) (5,600,000) (2,800,000) (14,000,000) Depreciation (1,600,000) (1,800,000) (600,000) (4,000,000) Segment profit before income tax 7,000,000 5,600,000 1,400,000 14,000,000 Income tax expense (3,500,000) (2,800,000) (700,000) (7,000,000) Segment profit 3,500, 2,800,000 700,000 7,000,
Segment Disclosures
Segment X Segment Y Others Total Sales 24,000,000 27,000,000 9,000, 60,000,000 Segment profit 3,500,000 2,800,000 700,000 7,000,000 Segment assets 28,000,000 22,000,000 10,000,000 60,000,
Reconciliations
Revenue Revenue of reportable segments 51,000,000 Revenue of nonreportable segments 9,000,000 Entity revenue shown in income statement 60,000,
Profit and Loss Profit or loss of reportable segments 6,300,000 Profit or loss of nonreportable segments 700,000 Corporate expenses (2,000,000) Income tax expense (4,000,000) Entity net income shown in income statement 10,000,
Total Assets Total assets of reportable segments 50,000,000 Total assets of nonreportable segments 10,000,000 General corporate assets 5,000, Entity total assets shown in statement of financial position 65,000,
Segment Reporting
Segment X
Sales: 24, Cost of goods sold: (9,800) Gross income: 14, Segment expenses: (4,800) Depreciation: (1,200) Income tax expense: (2,000) Segment profit or loss: 6,
Segment Y
Sales: 27, Cost of goods sold: (14,000) Gross income: 13, Segment expenses: (4,800) Depreciation: (1,350) Income tax expense: (1,600) Segment profit or loss: 5,
Others
Sales: 9, Cost of goods sold: (4,200) Gross income: 4, Segment expenses: (2,400) Depreciation: (450) Income tax expense: (400) Segment profit or loss: 1,
Total
Sales: 60, Cost of goods sold: (28,000) Gross income: 32, Segment expenses: (12,000) Depreciation: (3,000) Income tax expense: (4,000) Segment profit or loss: 13,
Disclosure of Segment Profit or Loss
| Segment | Sales | Profit or Loss | Depreciation | | --- | --- | --- | --- | | X | 24,000 | 6,200 | 1,200 | | Y | 27,000 | 5,250 | 1,350 | | Others | 9,000 | 1,550 | 450 | | Total | 60,000 | 13,000 | 3,000 |
Reconciliation
Revenue - Revenue of reportable segments: 51,000,000 - Revenue of nonreportable segments: 9,000,000 - Entity revenue shown in income statement: 60,000,
Profit and Loss - Profit or loss of reportable segments: 11,450,000 - Profit or loss of nonreportable segments: 1,550,000 - Unallocated depreciation: (1,000,000) - General corporate expenses: (2,000,000) - Entity net income shown in income statement: 10,000,
Intersegment Sales and Profit - Intersegment sales: 400,000 - Cost of sales - intersegment sales: (240,000) - Intersegment gross profit: 160,
Cost Allocation - Cost of goods sold, distribution cost, administrative expenses, and finance cost are allocated as: - 50% to Furniture - 25% to Stationery - 20% to Computer products - 5% to Other segments
Cost of sales related to intersegment sales: 50% to Furniture 40% to Stationery 10% to Computer products
Segment Assets and Liabilities | Segment | Current Assets | Property, Plant and Equipment | Goodwill | Total Assets | Current Liabilities | Noncurrent Liabilities | Total Liabilities | | --- | --- | --- | --- | --- | --- | --- | --- | | Furniture | 80,000 | 300,000 | 60,000 | 440,000 | 45,000 | 30,000 | 75,000 | | Stationery | 40,000 | 100,000 | 30,000 | 170,000 | 30,000 | 20,000 | 50,000 | | Computer products | 5,000 | 85,000 | 10,000 | 100,000 | 8,000 | 7,000 | 15,000 | | Others | 2,000 | 3,000 | - | 5,000 | 1,000 | 2,000 | 3,000 |
The remaining assets and liabilities are general corporate assets and liabilities identified with the entity as a whole.
Problem 13-
Reportable Segments
Segments with revenue equal to or greater than 200,000: Segments 1 and 3 Segments with identifiable assets greater than 150,000: Segments 1, 3, and 5 Segments with operating profit or loss equal to or greater than an absolute amount of 30,000: Segments 1, 3, and 4
Therefore, Segments 1, 3, 4, and 5 are reportable segments.
Additional Reportable Segments
The total revenue of the reportable segments (1, 3, 4, and 5) is 1,330,000, which is less than 75% of the total entity revenue of 2,000,000.
Segments 6 and 7 can be aggregated as one reportable segment since they are similar in four of the five criteria for identifying a business segment.
Final Reportable Segments
The reportable segments are: 1. Segment 1 2. Segment 3 3. Segment 4 4. Segment 5 5. Segments 6 and 7 (combined)
Problem 13-
Minimum Disclosures
| Segment | Revenue | Segment Profit or Loss | Depreciation | Total Assets | Total Liabilities | Capital Expenditures | | --- | --- | --- | --- | --- | --- | --- | | Product A | 2,500,000 | 650,000 | 350,000 | 2,600,000 | 1,300,000 | 600,000 | | Product B | 6,000,000 | 700,000 | 1,300,000 | 10,000,000 | 6,000,000 | 1,300,000 | | Total | 8,500,000 | 1,350,000 | 1,650,000 | 12,600,000 | 7,300,000 | 1,900,000 |
Entity-wide Disclosure about Geographical Areas
| Geographical Area | Revenue | Noncurrent Assets - PPE | | --- | --- | --- | | Philippines | 5,000,000 | 3,000,000 | | Japan | 3,500,000 | 2,100,000 | | Total | 8,500,000 | 5,100,000 |
Multiple Choice Questions
c. Both the separate and consolidated financial statements. d. Under all of these circumstances.
Operating Segment Reporting
Disclosure Requirements
According to the provided text, in financial reporting for operating segments, an entity shall disclose the following, except:
The title of the chief operating decision maker of each reportable segment.
The entity must disclose the following information for each reportable segment:
Types of products and services from which each reportable segment derives revenue Factors used to identify the reportable segments The basis of measurement of segment profit or loss and segment assets
Chief Operating Decision Maker
The text states the following regarding the chief operating decision maker:
The term "chief operating decision maker" identifies a function and not necessarily a manager with a specific title. In some cases, the chief operating decision maker could be the chief operating officer. The board of directors acting collectively could qualify as the chief operating decision maker.
Accounting Concepts and Principles
Cash Basis Accounting
Accounts Receivable and Allowance for Uncollectible Accounts : In 2018, the accounts receivable balance was $1,000,000 and the allowance for uncollectible accounts was $60,000.
In 2019, the accounts receivable balance was $1,300,000 and the allowance for uncollectible accounts was $110,000.
Advances from Customers :
In 2018, the advances from customers balance was $200,000.
In 2019, the advances from customers balance was $300,000.
Sales Revenue under Cash Basis :
Accounts receivable (2018): $940,000 ($1,000,000 - $60,000) Advances from customers (2019): $300, Sales: $4,600, Total: $5,840, Less: Accounts receivable (2019): $1,190,000 ($1,300,000 - $110,000), Advances from customers (2018): $200,000, and Wrote off: $50, Cash basis sales revenue: $4,400,
Service Organization Accounting
Cash Basis Sales Revenue for a Service Organization : Cash sales: $200, Credit sales: $3,000, Accounts receivable (December 31, 2018): $400, Accounts receivable (December 31, 2019): $485, Collections: $2,915, Total sales - cash basis: $3,115,
Merchandise Company Accounting
Cash Basis Sales Revenue for a Merchandise Company : Cash sales - net: $1,900,000 ($2,000,000 - $100,000) Credit sales - net: $2,850,000 ($3,000,000 - $150,000) Accounts receivable (January 1): $1,000, Accounts receivable (December 31): $750, Collections: $3,100,
Total sales - cash basis: $5,000,
Sales and Accounts Receivable under Cash Basis :
Accounts receivable (January 1): $1,000, Sales on account: $3,000,
Accounts receivable (December 31): $1,680, Accounts written off: $120, Collections: $2,200, Cash sales: $500, Total sales - cash basis: $2,700,
Prepaid Expenses
Insurance Expense and Prepaid Insurance : Prepaid insurance (January 1): $150, Insurance expense (including year-end adjustment of $25,000): $625, Prepaid insurance (December 31): $175,
Insurance premium paid: $625,
Operating Expenses and Cash Payments :
Operating expenses: Depreciation: $1,000, Insurance: $700, Salaries: $1,500, Total: $3,200, Prepaid insurance (January 1): $150, Prepaid insurance (December 31): $200, Accrued salaries payable (January 1): $120, Accrued salaries payable (December 31): $100, Cash paid for operating expenses: $2,270,
Proprietorship Accounting
Capital under Cash Basis : Capital (February 1): $200, Cash basis income for February and March: $500, Withdrawals during March: $100, Capital (March 31): $600,
Accrual Basis Accounting
Sales Revenue under Accrual Basis :
Accounts receivable (December 31, 2019): $300, Sales in 2019 under cash basis: $1,780, Accounts receivable (December 31, 2018): $500, Sales - accrual basis: $1,550,
Income under Accrual Basis :
Cash basis income: $6,000, Accounts receivable (2019): $4,000, Accounts payable (2018): $3,000, Accounts receivable (2018): $2,000,
Purchase returns and allowances: $60, Cash purchases: $130, Payments on accounts payable (net of discounts of $20,000): $1,500, Payments on notes payable: $400, Insurance: $220, Other expenses: $650, Sales returns and allowances: $50, Gross Sales under Accrual Basis: Accounts receivable (December 31): $250, Notes receivable (December 31): $150, Collections of accounts receivable: $1,800, Sales discount: $40, Collections of notes receivable: $80, Accounts receivable (January 1): $300, Notes receivable (January 1): $100, Cash sales: $500, Gross sales: $2,420, Gross Purchases under Accrual Basis: Accounts payable (December 31): $120, Note payable - trade (December 31): $100, Bank loan (December 31): $100, Payments of accounts payable: $1,500, Purchase discounts: $20, Payments on notes payable: $400, Accounts payable (January 1): $160, Note payable - January 1: $150, Cash purchases: $130, Gross purchases: $1,960,
Prepaid Royalties :
Prepaid royalties (January 1): $650, Royalty payment charged to royalty expense (October 31): $1,100, Year-end credit adjustment to expense: $250, Prepaid royalties (December 31): $850,
Prepaid Expenses :
Prepaid insurance (opening balance): $15, Prepaid insurance (July 1, 2018): $30, Prepaid insurance (July 1, 2019): $32, Prepaid rent (January 1, 2019): $20, Prepaid expenses (December 31, 2019): $36,
Prepaid Insurance and Insurance Expense :
Prepaid insurance (March 1, 2018): $72, Prepaid insurance (March 31, 2019): $3, Insurance expense (March 31, 2019): $72, Prepaid insurance (March 31, 2019): $70, Insurance expense (three months ended March 31, 2019): $2,
Prepaid Expenses and Accrued Liabilities
Prepaid Insurance
Roxy Company obtained fire insurance on July 1, 2019 with an annual premium of P72,000 payable on July 1 of each year. On December 31, 2019, the amount of prepaid insurance to be reported is P36,000 (P72,000 x 6/12).
Prepaid Taxes
On October 1, 2019, Roxy Company paid P24,000 for real estate taxes to cover the period ending September 30, 2020. On December 31, 2019, the amount of prepaid taxes to be reported is P18,000 (P24,000 x 9/12).
Total Prepaid Expenses
The total prepaid expenses to be reported on December 31, 2019 is P54,000 (P36,000 + P18,000).
Interest Expense Calculation
Clay Company paid a total of P100,000 in interest during the year ended December 31, 2019. The December 31, 2019 statement of financial position included: Prepaid interest: P18, Interest payable: P53, The interest expense to be reported in the income statement for the current year is P114,000, calculated as follows: Interest paid: P100, Add: Prepaid interest (2018): P23, Add: Interest payable (2019): P53, Total: P177, Less: Prepaid interest (2019): P18, Less: Interest payable (2018): P45, Interest expense: P114,
Advertising Expense Adjustment
Ashe Company had a P990,000 balance in the advertising expense account before any year-end adjustments. Radio advertising spots broadcast during December 2019 were billed to the entity on January 4, 2020 for P50,000, which was paid on January 15, 2020. Included in the P990,000 is P60,000 for newspaper advertising for a January 2020 sales promotional campaign. The amount of advertising expense to be reported for the year ended December 31, 2019 is P980,000, calculated as follows:
The amount of rental revenue to be reported for the current year is P9,080,000, calculated as follows: Cash received from tenants: P8,000, Add: Rental receivable (2019): P1,240, Add: Unearned rentals (2018): P3,200, Total: P12,440, Less: Rental receivable (2018): P960, Less: Unearned rentals (2019): P2,400, Rental revenue for 2019: P9,080,
Royalty Revenue Calculation
Carey Company received royalty remittance of P2,500,000 during 2019. The statement of financial position contained the following data at year- end: 2018 Royalties receivable: P750, 2019 Royalties receivable: P800, 2018 Unearned royalties: P450, 2019 Unearned royalties: P650, The amount of royalty revenue to be reported for the current year is P2,350,000, calculated as follows: Royalties received: P2,500, Add: Royalties receivable (2019): P800, Add: Unearned royalties (2018): P450, Total: P3,750, Less: Royalties receivable (2018): P750, Less: Unearned royalties (2019): P650, Royalty revenue: P2,350,
Adjusting Entries for Zamboanga Company
Record sales on accrual basis: Debit Sales: P200,
Credit Retained Earnings: P200,
Record accounts receivable:
Debit Accounts Receivable: P250,
Credit Sales: P250,
Record accrued expenses:
Debit Retained Earnings: P70, Debit Expenses: P100,
Credit Accrued Expenses: P100,
Record merchandise inventory:
Debit Merchandise Inventory, January 1, 2019: P150,
Credit Retained Earnings: P150, Debit Income Summary: P210,
Credit Merchandise Inventory, December 31, 2019: P210,
Record advance to supplier:
Debit Advances to Supplier: P100,
Credit Purchases: P100,
Record depreciation:
Debit Depreciation - Equipment: P20, Debit Depreciation - Building: P300, Credit Retained Earnings: P10, Credit Accumulated Depreciation - Equipment: P30,
Credit Accumulated Depreciation - Building: P600,
Record allowance for doubtful accounts:
Debit Doubtful Accounts: P25,
Credit Allowance for Doubtful Accounts: P25,
Record accrued interest:
Debit Interest Expense: P36, Credit Accrued Interest Payable: P36,
Income Statement for the Year Ended December 31, 2019
Zamboanga Company Income Statement Year Ended December 31, 2019
Sales: P4,090,000 Cost of Sales: P1,770,000 Gross Income: P2,320, Expenses: - Expenses: P1,530,000 - Depreciation - Equipment: P20,000 - Depreciation - Building: P300,000 - Doubtful Accounts: P25,000 - Interest Expense: P36,000 Total Expenses: P1,911,000 Net Income: P409,
Statement of Financial Position as of December 31, 2019
Zamboanga Company Statement of Financial Position December 31, 2019
Assets: - Cash: P1,500,000 - Accounts Receivable: P250,000 - Merchandise Inventory: P210,000 - Advances to Supplier: P100,000 - Equipment: P200,000 - Accumulated Depreciation - Equipment: P30,000 - Land: P800,000 - Building: P1,500,000 - Accumulated Depreciation - Building: P600,000 Total Assets: P3,930,
Liabilities: - Accrued Expenses: P100,000 - Accrued Interest Payable: P36,000 - Unearned Rental Income: P2,400,000 - Mortgage Payable: P900,000 Total Liabilities: P3,436,
Evelyn Company
Statement of Financial Position
December 31, 2019
Assets Current assets: Cash 200,000 Accounts receivable, net allowance 275,000 Inventory 230,000 Prepaid insurance 12,000 717,
Noncurrent assets: Land 300,000 Building 1,000,000 Less: accumulated depreciation 250,000 750,000 Equipment 400,000 Less: Accumulated depreciation 80,000 320,000 1,370,000 Total 2,087,
Liabilities and Equity Current liabilities: Accounts payable 130, Accrued rent payable 10,000 140,
Equity: Share capital 1,500,000 Retained earnings (note 1) 447, 1,947,000 Total liabilities and equity 2,087,
Note 1 – Retained earnings
Retained earnings per book 345,000 Unrecorded accrued rent – December 31, 2018 (5,000) Unrecorded prepaid insurance – December 31, 2018 7, Corrected beginning balance 347,000 Net income for 2019 100, Retained earnings – December 31, 2019 447,
Problem 14-
Civic Company began business operations on January 1, 2019. During the year, the accounting records are kept on a double entry system but on the cash basis of accounting. The entity decided to use the accrual basis. On December 31, 2019, the account balances are:
Civic Company
Income Statement
Year ended December 31, 2019
Sales 4,475,000 Cost of sales: Purchases 4,270,000 Less: Inventory – December 31 500,000 3,770,000 Gross income 705,
Expenses: Expenses 460,000 Doubtful accounts 5,000 Depreciation 5, Interest expense 4,000 474,000 Net income 231,
Civic Company
Statement of Financial Position
December 31, 2019
Assets Current assets: Cash 840,000 Accounts receivable (note 1) 95, Receivable from officer 10,000 Inventory 500,000 Prepaid expenses (note 2) 20,000 1,465,
Noncurrent asset: Equipment 100,000 Less: Accumulated depreciation 5,000 95,000 Total assets 1,560,
Liabilities and Equity Current liabilities: Accounts payable 80,000 Note payable 200,000 Accrued expenses 20,000 Advances from customer 25, Accrued interest payable 4,000 329,
Equity: Share capital 1,000,000 Retained earnings 231,000 1,231,000 Total liabilities and equity 1,560,
Note 1 – Accounts receivable
Accounts receivable 100,000 Allowance for doubtful accounts (5,000) Net realizable value 95,
Note 2 – Prepaid expenses
Office supplies unused 5,000 Prepaid insurance 15,000 Total prepaid expenses 20,
Problem 14-
Under accrual basis of accounting, cash receipts and disbursements may: a. Precede, coincide with, or follow the period in which revenue and expenses are recognized.
The statement regarding accrual basis versus cash basis of accounting that is true is: a. The cash basis is appropriate for smaller entities.
The Cash Basis vs. the Accrual Basis of
Accounting
The Cash Basis
a. Under the cash basis of accounting, revenue is recorded when it is realized, i.e., when cash is received. b. The cash basis is less useful in predicting the timing and amount of future cash flows of an entity. c. Application of the cash basis results in an income statement reporting revenue and expenses. d. The cash basis requires a complete set of double- entry records.
The Accrual Basis
a. Under the accrual basis of accounting, revenue is recorded when earned and realizable. b. Accounts receivable would be recorded under the accrual
Problem 15-
Given: - Shareholders' equity on December 31, 2019: P4,000,000 - Share capital remained unchanged at P3,000,000 during the year - Adjustment to retained earnings for overstatement of inventory on December 31, 2018: P200,000 - Dividend of P400,000 declared, of which P300,000 was paid in 2019 - Share capital split five for one during the current year - Net income for the year: P700,
Calculation: - Retained earnings on January 1, 2019: P900,
Problem 15-
Given: - Shareholders' equity on December 31, 2019: P5,000,000 - Share capital remained unchanged at P3,000,000 during the year - Adjustment of retained earnings for 2018 overdepreciation: P100,000 - Gain on sale of treasury shares: P300,000 - Dividend declared of P600,000, of which P400,000 was paid - Net income for the current year: P800,
Calculation: - Retained earnings on January 1, 2019: P1,400,
Problem 15-
Given: - Increase in assets during the current year: P8,900,000 - Increase in liabilities during the current year: P2,700,000 - Increase in share capital during the current year: P6,000,000 - Increase in share premium during the current year: P600,000 - Dividend payment of P1,300,
Calculation: - Net income for the current year: P900,
Problem 15-
Given: - Increase in Cash: P800,000 - Decrease in Accounts receivable: P400,000 - Increase in Inventory: P300,000 - Increase in Equipment: P950,000 - Increase in Note payable - bank: P500,000 - Decrease in Accounts payable: P600,000 - Increase in Share capital: P700,000 - Increase in Share premium: P300,000 - Cash dividend of P1,500,000 - Prior period error from understatement of ending inventory: P250,
Calculation: - Net income for the current year: P2,000,
Problem 15-
Given: - Beginning total liabilities: P840,000 - Ending total liabilities: P1,000,000 - Owners' equity at year-end: P2,600,000 - Total assets at year- end were P200,000 larger than at the beginning of the year - New share capital issued exceeded dividends by P240,
Calculation: - Net loss for the year: P200,
Problem 15-
Given: - Increase in Cash: P800,000 - Increase in Accounts receivable, net: P250,000 - Increase in Inventory: P1,250,000 - Decrease in Investment: P500,000 - Decrease in Accounts payable: P400,000 - Increase in Bonds payable: P900,000 - Increase in Share capital: P1,000,000 - Increase in Share premium: P100,000 - Dividend declaration of P300,000, which was paid in the current year
Calculation: - Net income for the current year: P500,
Problem 15-
Given: - Increase in Cash: P1,500,000 - Increase in Accounts receivable: P3,500,000 - Increase in Inventory: P3,900,000 - Decrease in Investments: P1,000,000 - Increase in Equipment: P3,000,000 - Decrease in Accounts payable: P800,000 - Increase in Bonds payable: P2,000,000 - Sale of 100, shares with P20 par for P30 per share - Dividend of P4,500,000 paid in cash
- Borrowed P4,000,000 from the bank and paid off note of P1,000,000 and interest of P600,000 - Interest of P400,000 payable at the end of the year - Interest payable at the beginning of the year: P100,000 - Equipment of P2,000,000 donated by a shareholder during the year
Calculation: - Net income for the current year: P5,900,
Problem 15-
Given: - Increase in Cash: P450,000 - Decrease in Accounts receivable: P300,000 - Increase in Merchandise inventory: P200,000 - Increase in Accounts payable: P100,000 - Increase in Prepaid expenses: P20,000 - Increase in Accrued expenses: P40,000 - Decrease in Unearned rental income: P30,000 - Owner transferred financial assets to the business and these were sold for P500,000 to finance the purchase of merchandise - Owner made withdrawals during the year of P100,
Calculation: - Net loss for the current year: P140,
Problem 15-
Given: - Paid trade creditors P2,000,000 in cash - Net loss of P350,000 - Ledger preclosing balances: - Accounts receivable: P600,000 - Accounts payable: P750,000 - Capital (total investment in cash): P2,000,000 - Expenses (paid in cash): P100,000 - Merchandise (unadjusted debit balance): P700,000 - All sales and purchases were on credit - Merchandise account is debited for purchases and credited for sales
Calculations: 1. Purchases for the year: P2,750,000 2. Sales for the year: P2,050,000 3. Cash balance at year-end: P1,350,000 4. Merchandise inventory at year-end: P700,
