Solution manual advanced financial accounting, 8th edition by baker chap013

decision-Q13-3 The three ten percent significance tests used to determine reportable segments under FASB 131 are the 10 percent revenue test, the 10 percent operating profit loss test, a

CHAPTER 13 SEGMENT AND INTERIM REPORTING

ANSWERS TO QUESTIONS

Q13-1 Information on a company's operations in different industries would be helpful

to investors in their assessments concerning the different profit rates, differentdegrees and types of risk, and different opportunities for growth of each of thedifferent industries In general, this breakdown helps the investors look behind theconsolidated totals to the individual components that comprise the company

Q13-2 The relationship between the FASB's segment disclosure requirements and a company's profit centers focuses on the management viewpoint in FASB 131 The

FASB requires that the definitions of operating segments used for internal making purposes be used for presenting segment information for financial statementpurposes

decision-Q13-3 The three ten percent significance tests used to determine reportable segments under FASB 131 are the 10 percent revenue test, the 10 percent operating

profit (loss) test, and the 10 percent assets test

For the 10 percent revenue test, the numerator and denominator are as follows:

Each operating segment's total revenue(including intersegment transfers and sales)Combined revenue of all operating segments(including intersegment transfers and sales)

For the 10 percent profit (loss) test, the numerator and denominator are as follows:

Each operating segment's profit (loss)Absolute value of the combined profit orcombined losses of the operating segments

(whichever is greater)

For the assets test, the numerator and denominator are as follows:

Each operating segment’s assetsCombined assets of all industry segments

Q13-4 Whatever items are used for internal decision-making purposes to measure

the operating segment’s profit or loss shall be reported in the external disclosure

Q13-5 Any segments passing one of the 10 percent tests would also be disclosed.

The lower limit for the number of segments to be disclosed is set by the 75 percentrevenue test If the assumption is made that the largest four segments fail the 75percent test and the largest five segments pass the 75 percent test, then the fivesegments should be separately reported The remaining segments, if they fail the 10percent tests, are combined under the heading of "Other Segments" and not definedfurther

Q13-6 First, FASB 131 specifies that all companies should disclose revenues and

long-lived, productive assets domestically and, in total, for all foreign activities Thetwo materiality tests applied to country-based foreign operations are the 10 percentrevenue test and the 10 percent long-lived asset test The profit or loss test is notused for foreign operations because of the many differences in tax structures andaccounting practices in different geographic areas

Q13-7 A company must disclose for each of its significant customers the amount of

sales to these customers and the associated industry segment The names of theindividual customers need not be disclosed, although some companies do disclosethe names of the customers

Q13-8 Interim reports can be used by investors to identify a company's seasonal

trends by identifying the pattern of revenue and expenses as they occur each interimperiod

Q13-9 The discrete view of interim reporting holds each interim period as a basic

accounting period to be evaluated as if it were an annual accounting period Any of-period adjustments and deferrals would be determined using the same accountingprinciples used for the annual report The integral view of interim reporting holds eachinterim period as an installment of an annual period Recognition and adjustment ofcertain income or expense items may be affected by judgments about the expected

end-results of the entire year's operations APB Opinion 28 uses the integral view of

interim reporting

Q13-10 Revenue from products sold or services rendered should be recognized as

earned during an interim period on the same basis as followed for the full year.Revenue from seasonal businesses cannot be manipulated to eliminate seasonaltrends

Q13-11 Those costs and expenses that are associated directly with or allocated to

the products sold or to the services rendered for annual reporting purposes should betreated similarly for interim reporting purposes The following practical modificationsare allowed to the general rule:

a Estimated gross profit rates may be used to determine an interim period's cost ofgoods sold

b Temporary reductions of inventories expected to be replaced by the end of thefiscal year should not be expensed through cost of goods sold at historical cost ifthe company uses the LIFO inventory valuation method The expectedreplacement cost of the liquidated portion of the LIFO base should be used forthe interim period's cost of goods sold

c Inventory losses due to a decline in market prices are recognized in the period ofdecline using the lower-of-cost-or-market valuation method Recoveries of

d Companies using a standard cost system for inventories should use the sameprocedures for computing and reporting variances in an interim period as used forthe fiscal year Purchase price variances or volume or capacity variances that areexpected to be absorbed by the end of the fiscal year should be deferred at theinterim period and should not be included in the interim income.

Costs and expenses other than product costs should be charged to income in interimperiods as incurred or be allocated among interim periods based on an estimate ofthe time expired, benefit received, or activity associated with the periods

Q13-12 The application of the lower-of-cost-or-market valuation method differs

between interim statements and annual statements when temporary market declinesare expected to reverse by the end of the fiscal year When a temporary marketdecline is experienced, the decline need not be recognized at the interim datebecause no loss is expected for the fiscal year

Q13-13 The integral theory of interim reporting would allocate the expenditure over

the interim periods benefited Thus, a portion of the $200,000 might be recognizedover one or more interim periods The discrete theory of interim reporting wouldrecognize the entire $200,000 in the interim period when the expenditure was made

Q13-14 At the end of the second interim period, the company should make its best

estimate of the effective tax rate expected to be applicable for the full fiscal year Therate so determined should be used in providing for income taxes on a current year-to-date basis The effective annual tax rate should reflect anticipated investment taxcredits, foreign tax rates, percentage depletion, capital gains rates, and otheravailable tax planning alternatives In arriving at this effective annual tax rate, noeffect should be included for the tax related to significant unusual or extraordinaryitems that will be separately reported or reported net of their related tax effect inreports for the interim period or for the fiscal year

Q13-15 If the future realizability of the tax benefit is not assured beyond a reasonable

doubt, the tax benefit is not shown in the interim statements

Q13-16 Extraordinary items should be disclosed separately, included in the

determination of net income for the interim period in which they occur, and shown net

of applicable taxes In determining materiality, extraordinary items should be related

to the estimated income for the full fiscal year

Q13-17 A change in accounting principle made in an interim period is reported using

the retrospective application process The balance sheet for the earliest periodpresented (usually an annual period) is adjusted for the cumulative amount of thechange as of the beginning of that year Then, all subsequent annual and interimfinancial statements shall be adjusted to the newly adopted accounting principle Inthe example of an inventory change, all the financial statements presented must beadjusted to the new method, the average cost method The balance sheet for theearliest period presented must include the cumulative effect as of the changecomputed as of the beginning of that first period presented

SOLUTIONS TO CASES

C13-1 Segment Disclosures [CMA Adapted]

a The purpose for requiring segment information to be disclosed in financialstatements is to assist financial statement users in analyzing and understanding theenterprise's financial statements by permitting better assessment of the enterprise'spast performances and future prospects

b The determination of the segments appropriate for an enterprise is theresponsibility of management; that is, management should use its judgment indeciding how to report its segment information Specific characteristics or sets ofcharacteristics management can use in determining how to group its products intosegments include the following:

1 Use of existing profit centers

2 A segment shall be regarded as significant and identified as a reportablesegment if one or more of the following are satisfied:

i 10% or more of the total revenue is derived from one segment

ii 10% or more of the greater in absolute amount of the aggregate profits oraggregate losses is contributed by the segment

iii 10% of the combined assets can be associated with the segment

3 Management has the ability to define the breakdown of the segments, but thesegment definitions used for external purposes must be the same as used forinternal decision making purposes

c The options available to Chemax Industries are as follows:

1 Segment by product line — antihistamines This single product meets the

10 percent test and can be anticipated as a significant product line in thefuture

2 Segment by product group — pharmaceutical, medical instruments, andmedical supplies Antihistamines can be carried as a part of thepharmaceutical group

3 Disaggregate pharmaceutical into ethical and proprietary drugs and carryantihistamines under whichever industry segment is appropriate (probablyproprietary drugs, in this case)

C13-2 Matching Revenue and Expenses for Interim Periods

a Revenue, product costs, gains, and losses should be recognized for interimperiods on the same bases as for an annual period These items should berecognized in the period earned or incurred and should not be deferred or allocated toother interim periods

b Cost of goods sold and inventory valuation requires several estimations becausephysical counts typically are not made for interim periods Cost of goods sold may beestimated using the gross profit method Temporary liquidations of LIFO layers arepriced using the replacement costs of the goods, not the LIFO cost Temporaryreductions in the market value below cost under the lower-of-cost-or-market rule donot need to be recognized in an interim period However, reductions in value that may

be permanent must be recognized A loss recovery is allowed for recoveries of marketvalue from one interim to another

c Period costs are those such as depreciation or other amortizations and allocations.These should be allocated to each interim period based on a reasonable allocationmethod such as straight-line or percentage of the interim period's revenue toexpected annual revenue

d Accounting treatment for interim statements:

1 Long-term contracts — These contracts are accounted for on the same basis asfor the annual period Percentage-of-completion estimates are made eachinterim and gross profit is recognized If the completed contract method is used,then profit is recognized only for projects completed within the interim period

2 Advertising costs — These costs may be capitalized and allocated to the interimperiods that benefit However, no advertising costs are deferred beyond the end

of the annual fiscal period The allocation should be on a reasonable basis such

as the percentage of interim revenue to expected annual revenue Advertisingcosts or other costs that will benefit more than one interim period may bedeferred under the integral approach used for interim reporting

3 Seasonal revenue — Revenue must be recognized in the period earned Thecompany may not defer revenue from one interim to another in an attempt tosmooth the revenue stream

4 Flood loss — Extraordinary items must be recognized in the interim period inwhich the event occurs

5 Annual major repairs and maintenance — Unusually large and nonrecurringcosts may be capitalized to the asset and carried past the end of the fiscalperiod However, normal maintenance and repairs may not be carried beyondthe end of the fiscal year Some accountants account for repairs on an interimbasis by charging each of the interim periods with a proportionate amount of theannual repair cost and establishing an allowance for repairs contra account tothe plant and equipment account The expenditure is then charged against theallowance account Other accountants would charge the entire cost off in theinterim period in which the expenditure is made

C13-3 Segment Disclosures in the Financial Statements [CMA Adapted]

a A subdivision of an entity is a reportable segment if one of the following tests ismet:

1 Revenue, both unaffiliated and intersegment revenue, is ten percent or more oftotal revenue, which includes intersegment revenue For each of Bennett'ssegments, divide the sum of the unaffiliated sales and intersegment sales bytotal company sales of $63,000 If the result is ten percent or more, therevenue test is met for that specific segment

2 The absolute value of profit or loss is ten percent or more of the greater ofeither the total profit of segments that did not incur a loss or the total, inabsolute amounts, of the segments that did incur a loss For each segment,divide the absolute value of the profit or loss by the sum of the segment profits

of $6,200 If the result is ten percent or more, the segment profit or loss test ismet for that specific segment

3 Assets are ten percent or more of total assets For each segment, divide thevalue of the assets by total assets of $100,000 If the result is ten percent ormore, the assets test is met for that specific segment

The calculations for the segments of Bennett Inc yield results that show that allsegments are reportable with the exception of Security Systems, which does notmeet any of the tests See the results of all the tests in the table below

Bennett Inc

Results of Required Tests for Determining Segment Reporting

For the Year Ended December 31, 20X5

Tools Systems Products Products Systems

Reportabl

b For the reportable segments of Bennett Inc to represent a substantial portion oftotal operations, the combined revenue from sales to unaffiliated customers of allreportable segments must be at least 75 percent of the total sales for the company as

a whole Since the sales to unaffiliated customers of Bennett's reportable segmentsare $44,300 and represent approximately 96 percent of the company's total sales($44,300 / $46,300), this criterion would be met

C13-4 Determining Industry and Geographic Segments

a This is an actual case adapted from experiences with a large, publicly held U.S.company The U.S company's management was reluctant to disclose informationabout the Canadian operation's profitability because of the desire to maintain itseconomic competitiveness, and because of fear that Canadian authorities might want

to increase regulation of non-Canadian owned companies operating in Canada

b Under FASB 131, the U.S company must present its segmental disclosures

based on the definition of operating segments as used for internal decision making.Therefore, if the management of the company felt that the two product lines weresufficiently comparable, management could aggregate the two product lines in thesame operating segment for internal decision-making purposes Then, because thetwo product lines were in one operating segment for internal decision-makingpurposes, they would be considered one operating segment for external disclosure

purposes under FASB 131 However, FASB 131 also requires separate disclosure of

revenues by product line The company could still be required to disclose revenueinformation about the pasta product line

One interpretation the company could use to postpone separately disclosing detailedinformation about its pasta business is to argue that the pasta business passed one

of the 10 percent tests in the current year because of some unusual, one-time eventsthat are not expected to continue Thus, if a segment becomes reportable in a singleperiod because of some significant one-time events, the company may choose not toinclude it as a separately reportable segment However, if in the next year, the pastabusiness continues to meet the separately reportable segment tests, then thecompany’s management would not be able to use this argument

c FASB 131 requires separate disclosure of total revenues from external customers

attributed to the domestic operations and the total attributed to all foreign operations

In addition, disclosure is required of the total of long-lived assets located in thecountry of the domestic operations and the total long-lived assets in all foreigncountries If the revenues or the long-lived assets in any individual country arematerial, then separate disclosure of the material revenues or significant amount of

long-lived assets must be made for those specific countries FASB 131 did not

specifically state a measure of materiality to be used in assessing foreign operations.Management does have the flexibility to determine the basis of assigning revenues tospecific countries For example, in this case, management may argue that therevenues should be based on the point-of-sale to the eventual consumer Thus, sales

of the pasta products in the U.S would be assignable to the U.S domestic marketeven though the product may have been manufactured in Canada

C13-5 Segment Reporting

a A great amount of information can be found on a company’s homepage rangingfrom financial information to product information and company profiles The internetaddress for many companies includes their company name Your students maysimply use a web browser to do a search for a specific company

b EDGAR is a comprehensive database of SEC filings for all publicly held firms TheURL is http://www.sec.gov and EDGAR can be accessed from there All SEC filingsfor publicly held firms are available in this database and the filings can be easilyprinted off for further use, if required

C13-6 Interim Reporting

a & b Internet URL: http://www.sec.gov/

The above Internet address provides access to the SEC’s homepage that has a link

to the EDGAR database From this page, the user is able to select "Search forCompany Fillings” and then on the Search the EDGAR Database page that comes

up, to select “Companies & Other Filers” under the General Purpose Searchesheading This link takes you to EDGAR Company Search page at which you will enterthe Company name After clicking on the “Find Companies” button at the bottom ofthe screen, students will be taken to a listing of the companies with that name, andcan select their specific company which will then take them to the listing of all SECfilings for that company and they can then quickly scroll down to find a Form 10-Q

In comparison to the Form 10-K, several differences in Form 10-Q are noted Theinterim financial statements and footnotes are entirely unaudited As the interimfinancial statements are unaudited, no report from the independent publicaccountants is provided in the Form 10-Q

C13-7 Defining Segments for Disclosure

MEMO

To: Randy Rivera, CFO, Stanford Corporation

From:

For the current annual reporting period, Stanford Corporation has identified four operatingsegments that meet the quantitative thresholds to be considered reportable segments

under FASB Statement No 131 (FASB 131) Neither the cereals segment nor the sports

beverage segment meets any of the three quantitative thresholds in the current period

[FASB 131, Par 18]

However, the FASB 131 quantitative thresholds are intended to insure that information

about significant business segments is included in the disclosures, not to limit theinformation that can be provided

The cereals segment, which was disclosed as a reportable segment last year, cancontinue to be reported this year if its disclosure provides significant information for theusers of the financial statements, even though the segment does not meet the specific

criteria for separate disclosure specified in paragraph 22 of FASB 131.

In addition, the segment disclosure standard allows companies to designate additionaloperating segments as reportable segments Management may decide to provideseparate disclosure of segment information for other segments that management feelsthat the disclosure would be of information value to the users of the financial statements

Finally, paragraph 24 of FASB 131 addresses the possibility that identification of too

many reportable segments might result in overly detailed segment information As ageneral guideline, the standard suggests that a reasonable limit of 10 segments should

be used and smaller, somewhat comparable segments can then be combined forpurposes of the footnote disclosure

As a result of my research, I conclude that it would be acceptable for Stanford to reportinformation about six segments, including the cereals and sports beverage segments.Disclosure of information for six segments does not approach the practical limit on the

number of segments suggested in FASB 131 The continuing significance of the cereals

segment and the developing significance of the sports beverage segment make their

inclusion appropriate even though these segments do not meet the FASB 131

quantitative thresholds in the current year

C13-8 Income Tax Provision in Interim Periods

MEMO

To: Andrea Meyers, Controller's Department, Vanderbilt Company

From:

Re: Income Tax Provision in Interim Periods

In computing the income tax provision for interim periods, APB 28 states that the

company should make its best estimate of the effective tax rate expected to be applicable

for the year [APB 28, Para 19] This estimate should reflect all expected tax credits, and

other tax rates, such as foreign taxes Therefore, anticipated tax credits available toVanderbilt should be included in the computation of the expected effective annual taxrate

However, the first quarter calculation of this tax rate cannot include the anticipated energytax credit benefits because the tax law providing the energy tax credit has not yet beenenacted into law

Vanderbilt's first quarter estimate of the effective annual tax rate should not include theexpected tax benefits of the energy tax credit Changes in the tax rate are to be

recognized as changes in estimate, according to APB 28 If the legislation is enacted as

expected, the effect of the tax credit should be factored into the estimate of the effectiveannual tax rate made at the end of the third quarter, which would reduce the income taxprovision for the third quarter of 20X5

C13-9 Questions about Interim Reporting

1 In their third-quarter 10-Q, a company would have the following four incomestatements for the respective reporting periods:

a An income statement for the third quarter and a comparative income statement forthe third quarter of the prior year

b An income statement for the cumulative first three quarters of the current year and

a comparative cumulative income statement for the first three quarters of theprior year

2 FASB 154 requires that a change in depreciation method be accounted for as a

change in accounting estimate effected by a change in accounting principle The currentand prospective application is used and prior financial statements are not restated Thus,the third quarter and subsequent periods would report with the new depreciation method

3 The company would report a condensed balance sheet as of the end of the thirdquarter and a condensed balance sheet as of the end of the prior fiscal year However, acompany should also provide a comparative, condensed balance sheet as of the end ofthe third quarter of the prior fiscal year if it is necessary for understanding the seasonalfluctuations on the company’s financial condition

4 No, interim financial statements do not need to be audited However, somecompanies choose to have their interims audited Summary amounts from the interimreports are included in the annual financial report and are subject to audit review at thattime

5 FASB 131 requires segment disclosures in each interim report However, the level of

detail of information required in the interim report is less than that required in the annualreport

6 Publicly owned companies classified as accelerated filers must file their 10-Q within

35 days after the end of each of their first three quarters Companies not meeting thecriteria of accelerated files must file within 45 days after the end of each of their first threequarters

7 The methods of computing revenues for interim reporting should be the same asthose used for the annual financial statements The reason for this is so that financialstatement users may properly determine the revenue patterns during the year However,

if a company makes a change in accounting principle that affects the computation of itsrevenues, the company must retroactively apply the new accounting principle to all priorinterims

8 No, a company is not required to take a physical inventory at the end of each quarteralthough a physical inventory is required as part of the annual audit procedures Acompany usually estimates ending inventory for each quarter based on beginninginventory plus purchases, less the cost of sales The cost of sales is estimated using thenormal mark-up percentages from cost to retail

9 Many companies allocate costs incurred in a quarter that benefit the entire year Acommon example of this are the costs associated with retooling efforts during the shortperiod the company is shut down each year for retooling to take place Several allocationmethods are allowed such as allocating a fourth of the retooling cost to each quarter or

relating the retooling cost to proportional sales revenue during the year The key point toselecting an allocation method is that the method must be rational and relate to thebenefits received from the cost .

C13-9 (continued)

10 This is a change in accounting principle for which FASB 154 requires a retrospective

application All prior periods, including prior interims, are restated to the new accountingprinciple (percentage-of-completion) for the direct effects of the change This presumesthat the company is able to determine the effects of the change on previous interimperiods Otherwise the company must wait until the first day of the next fiscal year tomake the change

11 This is a change in estimate and is treated currently and prospectively Prior interimsare not restated for this change in estimates The change in estimate would be made effective as of the first day of the interim period in which the change is made

SOLUTIONS TO EXERCISES

E13-1 Reportable Segments

a Segment Revenuea Profit (loss)b Assetsc

a Segment revenue greater than $77,500 ($775,000 x 10)

b Segment profit or loss greater than $10,370

($103,700 total profit, excluding loss segments x 10)

c Segment assets greater than $118,500 ($1,185,000 x 10)

All segments but Electronics and Sporting Goods are separately reportable

b The 75 percent test is applied to revenue from unaffiliated customers

Revenue from unaffiliated customers

of reportable segments = $655,000 = 87.3%

Total revenue from unaffiliated customers $750,000

Yes, the 75 percent test is met

E13-2 Multiple-Choice Questions on Segment Reporting [AICPA Adapted]

Indirect operating expenses (3/4 x $120,000) (90,000)

E13-3 Multiple-Choice Questions on Interim Reporting [AICPA Adapted]

11 b According to APB 28, gains and losses arising from events such as

discontinued operations, unusual or infrequent events, and extraordinary itemsshould be reported in the interim period in which the event occurs On the otherhand, expenses incurred in one interim period that benefit other interim periodsshould be allocated to the interim periods benefited In the case of Park Corp.,the $40,000 of property taxes should be allocated to all interim periods For thesix months ended June 30, 20X5, Park should recognize 50% of the $40,000,

or $20,000, as an expense However, the entire $100,000 net loss from thedisposal of the business segment should be recognized as a loss for the sixmonths ended June 30, 20X5 Therefore, a total of $120,000 should beincluded in the determination of Park's net income for the six months endedJune 30, 20X5

E13-4 Temporary LIFO Liquidation

Case a: Partial replacement of LIFO base by year-end.

Excess of Replacement Cost over LIFO

Sold 1,240 units of LIFO base of which 900 units

are expected to be replaced:

$22,320 = 1,240 units x $18 LIFO cost

$8,100 = 900 units x $9 ($27 expected

replacement cost less $18 LIFO cost)

(2) The account, Excess of Replacement Cost over LIFO Cost of Inventory

Liquidation, is often reported on the quarterly balance sheets as a currentliability Some companies report this valuation account as a reduction ofinventory The account is not reported on the annual balance sheet because theLIFO inventory at year-end is based on the actual units remaining in inventory atyear end

Excess of Replacement Cost over LIFO

Replace 900 units of LIFO base:

$16,200 = 900 units x $18 LIFO cost

$3,600 = 900 units x $4 difference between

$31 actual and $27 estimated

replacement cost

$27,900 = 900 units x $31 actual cost of

replacement

Case b: No replacement of LIFO base by year-end.

Excess of Replacement Cost over LIFO

Sold 1,240 units of LIFO base of which 300 units

are expected to be replaced:

$22,320 = 1,240 units x $18 LIFO cost

$2,700 = 300 units x $9 ($27 expected

replacement cost less $18 LIFO cost)

(2) December 31 entry:

Excess of Replacement Cost over LIFO

Eliminate remaining balance in LIFO valuation

account because company did not replace LIFO

inventory sold in July

E13-5 Inventory Write-Down and Recovery

Case a: Market reductions assumed permanent.

Quarter Units Sold +/- to Market Goods Sold

E13-5 (continued)

Case b: Market reductions assumed temporary and price will recover by year-end.

If market reductions are assumed to be temporary, the company is not required torecognize in its interim financial statements the effects of the seasonal changes in prices(and few companies would under the assumption of temporary reductions recovering byyear-end) However, the company would be required to revalue its year-end inventory tolower-of-cost-or-market for its annual financial statements

Quarter Units Sold +/- to Market Goods Sold

(400 x $850)

$850 is unitcost from 20X0

E13-6 Multiple-Choice Questions on Income Taxes at Interim Dates [AICPA

5 c 25 X $200,000 = $50,000

6 b Deferred taxes are computed only for temporary

differences The other items are permanent differences

E13-7 Significant Foreign Operations

Percent ofSales to Consolidated

Geographic Area Customers $793,000 Reportable

Percent ofTotal Long-

Geographic Area Assets of $1,182,000 Reportable

E13-8 Major Customers

Major customers are those to whom sales equal or exceed $4,300,000($43,000,000 x 10) Government units under common control are classified as asingle customer However, counties are not under the common control of thestate government Therefore, Cook County is a separate customer from theState of Illinois

Adjustment for permanent differences:

Addback: Premiums for life insurance $ 12,000

Tax-exempt income to be received (20,000) (78,000)Estimated annual taxable income from

Estimated effective annual tax rate =

$408,800 / $1,200,000 = 34 (rounded)

(Note that the estimated income taxes for the

year include both federal and state income

taxes.)

Record first-quarter tax provision:

$170,000 total pre-tax earnings

+ 30,000 addback extraordinary loss that is

reported separately with its own

income tax effect

$200,000 first-quarter income from continuing

operations

x .34 effective annual tax rate

$ 68,000 first quarter tax provision for

continuing operations

(Note that the problem requires only the tax provision for the continuing operations The tax effect of the extraordinary loss would be recognized separately.)

E13-10 Operating Loss Tax Benefits

Income (Losses) Estimated Tax (Benefit) Before Taxes Effective Less Reported

Year- Annual Year- Previously In Period Period to-Date Tax Rate to-Date (a) Provided Period

E13-11 Industry Segment and Geographic Area Revenue Tests

a Operating segments revenue test (in thousands)

Combined Percent of Combined Separately Operating Segment Revenue Revenue of $1,385 Reportable

b Geographic Area revenue test (in thousands)

Unaffiliated Percent of Consolidated SeparatelyGeographic Area Revenue Revenue of $1,165 Reportable

c Disclosure of operating segments' revenue (in thousands)

Drugs Drugs Drugs Other bined tions idated Sales to