Choice "c" is correct, No - No. This is a change in "accounting estimate," which affects only the

current and subsequent periods (not prior periods and not retained earnings). "Cumulative effect of

a change in accounting principle" is only used for changes in "accounting principle."

Choice "d" is correct. Yes - No. Predictive value is an ingredient of relevance but not of reliability.

Memorize:

Bud's relevance to "PFT."

Bud's reliability to "VRN."

Choice "b" is correct. Sales to other segments would be used in determining a segment's operating

income.

Rule: Equity in net income of another company, general corporate expenses, interest, income tax

expense, and gains or losses on discontinued operations are all not included in segment profit unless

they are included in the determination of segment profit reported to the "Chief Operating Decision

Maker."

Choice "b" is correct. Since the fair value of Alpha's facilities was $300,000 less than its carrying

value, there has been an impairment loss, and that loss should be recognized in 20X2. That $300,000

impairment loss plus the $1,400,000 20X2 operating loss would be recognized in 20X2 net of tax. The

total loss would be $1,700,000 × 70% (100% - 30%) or $1,190,000.

Choice "a" is incorrect. It includes the 20X2 operating loss of $1,400,000 but not the $300,000

impairment loss but does report the 20X2 operating loss net of tax.

Choice "c" is incorrect. It includes the 20X2 operating loss of $1,400,000, but not the $300,000

impairment loss, and reports the 20X2 operating loss gross of tax and not net of tax.

Choice "d" is incorrect. It reports the 20X2 loss from discontinued operations gross of tax and not net

of tax.

Choice "d" is correct. The summary of significant accounting policies should include "policies." The

only policy in the choices listed is the revenue recognition policies.

Choice "a" is incorrect. A description of current year equity transactions is not a policy. It should be

disclosed somewhere in the footnotes but not in the summary of significant accounting policies.

Choice "b" is incorrect. A summary of long-term debt outstanding is not a policy. It should be

disclosed somewhere in the footnotes but not in the summary of significant accounting policies.

Choice "c" is incorrect. A schedule of fixed assets is not a policy. It should be disclosed somewhere in

the footnotes but not in the summary of significant accounting policies.

Choice "a" is correct. For segment reporting, if an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The same rule does not apply for the segment's liabilities. The candidate does have to remember the 10% and also the 10% of "what." Choice "b" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The same rule does not apply for the segment's liabilities. Choice "c" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The same rule does not apply for the segment's liabilities, so the correct answer cannot be "Both." Choice "d" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The correct answer cannot be "Neither."

Choice "a" is correct. The earliest period that a component of an entity can be reported in

discontinued operations is when the component meets the following "held for sale" criteria:

1. Management commits to a plan to sell the component.

2. The component is available for immediate sale in its present condition.

3. An active program to locate a buyer has been initiated.

4. The sale of the component is probable and the sale is expected to be completed within one year.

5. The sale of the component is being actively marketed.

6. It is unlikely that significant change to the plan to sell will be made or that the plan will be

withdrawn.

Choices "b", "c", and "d" are incorrect, per the Explanation: above.

Choice "b" is correct. $260,000 represents a reportable segment (10% of total sales):

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Rule: To be significant enough to report on, a segment must be at least 10% of:

1. Combined revenues (whether intersegment or unaffiliated customers), or

2. Operating income, or

3. Identifiable assets.

Choice "c" is correct. Yes - No.

Yes - "Depreciation methods" should be disclosed in the "summary of significant accounting

policies."

No - Composition of fixed assets (or any other account) should not be disclosed in the "summary of

significant accounting policies."

Choice "d" is correct. A transaction that is unusual, but not "infrequent" should be reported

separately as a component of continuing operations, (gross) but not net of applicable income taxes.

Choices "a" and "b" are incorrect. An extraordinary item has to be both "unusual" and "infrequent."

Choice "c" is incorrect, per "d" above.