Financial Accounting and Reporting-CPA Practice Exam 2025 - Free CPA Practice Questions and Study Guide

The 10% Size Test is a criterion used in determining reportable segments under the accounting standards, specifically in the context of segment reporting, as outlined in ASC 280 for U.S. GAAP. This test is applied to assess the significance of an operating segment to the overall business, helping identify which segments should be separately reported in the financial statements.

The test evaluates three components: a segment’s revenue, assets, and profit or loss. However, the primary focus often emphasized in educational contexts is the segment's revenue. According to the guidance, a segment must meet at least one of the 10% thresholds based on revenues, assets, or profits to be considered reportable.

When considering option C, the emphasis is specifically placed on the segment's revenue meeting or exceeding 10% of the total revenues of all operating segments. This significance indicates the level of financial contribution that the segment makes, making it necessary for the entity to disclose this information to provide transparency and insight into its operations.

While the assets and profit/loss are also important for consideration in segment reporting, the correct answer highlights the revenue component, recognizing it as a key factor in the initial assessment of segment size. This is consistent with the conceptual framework for financial reporting, which priorit