Perform testing procedures to determine company E’s reportable operating segments.
Answer to Problem 35P
Plastics and metals are the reportable operating segments.
Explanation of Solution
Three testing procedures are performed to determine company E’s reportable operating segments.
1. Revenue test
2. Profit or loss test
3. Asset test
1. Revenue Test
Calculate total revenue of segments
Plastics | Metals | Lumber | Paper | Finance | |
Sales to outside parties | $ 6,694 | $ 2,354 | $ 711 | $ 422 | $ –0– |
Intersegment transfers | $ 148 | $ 173 | $ 138 | $ 150 | $ –0– |
Interest income from outside parties | $ –0– | $ 34 | $ 21 | $ –0– | $ 42 |
Interest income from intersegment loans | $ –0– | $ –0– | $ –0– | $ –0– | $ 201 |
Total revenue of segment | $ 6,842 | $ 2,561 | $ 870 | $ 572 | $ 243 |
Table: (1)
Perform revenue test
Revenue | Percentage | |
Plastics | $ 6,842 | 61.70% |
Metals | $ 2,561 | 23.09% |
Lumber | $ 870 | 7.84% |
Paper | $ 572 | 5.15% |
Finance | $ 243 | 2.19% |
Total revenue | $ 11,088 | 100% |
Table: (2)
Segments with percentage more than 10% are reportable. These are plastics and metals.
2. Profit or loss test
Calculation of expenses of segments
Plastics | Metals | Lumber | Paper | Finance | |
Operating expenses | $ 4,214 | $ 1,762 | $ 1,066 | $ 654 | $ 31 |
Interest expense | $ 76 | $ 31 | $ 66 | $ 28 | $ 102 |
Total expense of segments | $ 4,290 | $ 1,793 | $ 1,132 | $ 682 | $ 133 |
Table: (3)
Perform
Revenues | Expense | Profit | Loss | Percentage | |
Plastics | $ 6,842 | $ 4,290 | $ 2,552 | 74.40% | |
Metals | $ 2,561 | $ 1,793 | $ 768 | 22.39% | |
Lumber | $ 870 | $ 1,132 | $ (262) | (7.63%) | |
Paper | $ 572 | $ 682 | $ (110) | (3.20%) | |
Finance | $ 243 | $ 133 | $ 110 | 3.20% | |
Total | $ 11,088 | $ 8,030 | $ 3,430 | $ (372) | 100% |
Table: (4)
Segments of 10% or more of profits are reportable. These are plastics and metals.
3. Asset Test
Calculate assets of segments
Plastics | Metals | Lumber | Paper | Finance | |
Tangible assets | $ 1,501 | $ 3,196 | $ 524 | $ 771 | $ 179 |
Intangible assets | $ 87 | $ 403 | –0– | $ 63 | –0– |
Intersegment loans (debt) | –0– | –0– | –0– | –0– | $ 706 |
Total assets of segments | $ 1,588 | $ 3,599 | $ 524 | $ 834 | $ 885 |
Table: (5)
Perform asset test:
Assets | Percentage | |
Plastics | $ 1,588 | 21.37% |
Metals | $ 3,599 | 48.43% |
Lumber | $ 524 | 7.05% |
Paper | $ 834 | 11.22% |
Finance | $ 885 | 11.91% |
Total | $ 7,430 | 100% |
Table: (6)
Segments more than 10% of assets are reportable. These are plastics, metals, paper, and finance.
Analysis of tests
Tests | Plastics | Metals | Lumber | Paper | Finance |
Revenue Test | ✓ | ✓ | |||
Profit or loss Test | ✓ | ✓ | |||
Asset Test | ✓ | ✓ | ✓ | ✓ |
Table: (7)
Plastics and metals are the reportable operating segments.
Want to see more full solutions like this?
Chapter 8 Solutions
Advanced Accounting - Standalone book
- Ecru Company has identified five industry segments: plastics, metals, lumber, paper, and finance. It appropriately consolidated each of these segments in producing its annual financial statements. Information describing each segment (in thousands) follows: Sales to outside parties Intersegment transfers Interest income from outside parties Interest income from intersegment loans Operating expenses Interest expense Tangible assets Intangible assets Intersegment loans (debt.) Plastics $6,870 a. Revenue test: 163 0 0 4,354 83 1,567 94 Metals $2,419 186 41 0 1,832 38 3,261 416 0 Lumber $ 746 151 28 0 1,136 73 589 0 0 Ecru does not allocate its $1,360,000 in common expenses to the various segments. " Perform testing procedures to determine Ecru's reportable operating segments. Paper Finance $ 457 $0 163 0 0 689 20 836 70 0 0 49 214 38 109 214 0 719arrow_forwardEcru Company has identified five industry segments: plastics, metals, lumber, paper, and finance. It appropriately consolidated each of these segments in producing its annual financial statements. Information describing each segment (in thousands) follows: Sales to outside parties Intersegment transfers Interest income from outside parties Interest income from intersegment loans Operating expenses Interest expense Tangible assets Intangible assets Intersegment loans (debt) Plastics $6,855 163 a. Revenue test: b. Profit or loss test: c. Asset test: 0 0 4,334 82 1,577 93 0 Metals $2,414 185 40 0 1,822 37 3,256 415 0 Lumber $ 741 150 27 0 1, 126 72 584 0 0 Ecru does not allocate its $1,400,000 in common expenses to the various segments. Perform testing procedures to determine Ecru's reportable operating segments. Paper Finance $ 452 162 0 0 684 22 831 69 0 0 48 213 37 108 209 0 718arrow_forwardWestinghouse Electric CorporationThe following note appears in the “Summary of Significant Accounting Policies” section of the Annual Report of Westinghouse Electric Corporation. Note 1 (in part): Revenue Recognition. Sales are primarily recorded as products are shipped and services are rendered. The percentage-of-completion method of accounting is used for nuclear steam supply system orders with delivery schedules generally in excess of five years and for certain construction projects where this method of accounting is consistent with industry practice. WFSI revenues are generally recognized on the accrual method. When accounts become delinquent for more than two payment periods, usually 60 days, income is recognized only as payments are received. Such delinquent accounts for which no payments are received in the current month, and other accounts on which income is not being recognized because the receipt of either principal or interest is questionable, are classified as nonearning…arrow_forward
- Lechon Company provided the following data for the current year: Sales Cost of goods sold Expenses Depreciation Income tax expense The entity has two major reportable segments, A and B. An analysis revealed that P1,000,000 of the total depreciation expense and P2,000,000 of the expenses are related to general corporate activities. The remaining expenses and sales are directly allocable to segment activities according to the following percentages: Sales Cost of goods sold Expenses Depreciation P60,000,000 28,000,000 14,000,000 4,000,000 4,000,000 Segment A 40% 35 40 40 Segment B 45% Others 15% 15 20 15 50 40 45 What amount should be reported as net income of Segment A?arrow_forwardWWK Company and its divisions are engaged solely in manufacturing. The entity reported the operating profit or loss of its divisions at Segment A P20,000,000 profit, Segment B P10,000,000 loss, Segment C P6,000,000 loss, Segment D P9,000,0000 loss, and Segment E P2,000,000 profit. What is the minimum operating profit or loss for a segment to be classified as reportable segment?arrow_forwardUnder the overall size test, what is total revenues that all reportable segments must at least report so that entity is not required to identify any additional reportable segments? * MEXICO Company and all its divisions are engaged in a merchandising business. The 2021 income statement of MEXICO showed the following: Sales to unaffiliated customers 20,000,000 Gain on sale of machinery 1,500,000 Operating expenses 15.000,000) Net income 6,500,000 In the process of determining the consolidated net income, intersegment sales of P3,000,000 were eliminated.arrow_forward
- Company A and its divisions are engaged solely in manufacturing operations. The following data pertain to the industries in which operations were conducted for the year ended December 31, 2019. Industry Revenue Profit Assets Red 8,000,000 (1,320,000) 16,000,000 Orange 6,400,000 920,000 14,000,000 460,000 10,000,000 Yellow 4,800,000 2,200,000 (420,000) 5,300,000 Green (240,000) 5,600,000 Blue 3,400,000 180,000 2,400,000 Purple 1,200,000 Calculate the materiality threshold that would be used under the profit or loss test to determine which segments are reportable.arrow_forwardASENSO Company and its divisions are engaged solely in manufacturing. The following data pertain to the industries in which operations were conducted for the current year: Segment Intersegment Sales External Revenue A 1,000,000 5,000,000 B 1,500,000 3,000,000 C 4,000,000 8,000,000 D 2,000,000 2,800,000 E 200,000 900,000 What is the minimum amount of revenue to be considered a major customer? 1,970,000 2,100,000 2,840,000 920,000arrow_forwardASENSO Company and its divisions are engaged solely in manufacturing. The following data pertain to the industries in which operations were conducted for the current year: Segment Intersegment sales External revenue A 1,000,000 5,000,000 B 1,500,000 3,000,000 C 4,000,000 8,000,000 E 2,000,000 2,800,000 F 200,000 900,000 What is the minimum amount of revenue to be considered a major customer? A. 1,970,000 B. 2,100,000 C. 2,840,000 D. 920,000arrow_forward
- An entity and its divisions reported the following for the current year: Sales to unaffiliated customers 40,000,000 Intersegment sales of product similar to those sold to unaffiliated customers 12,000,000 Interest earned on loans to other operating segments 1,000,000 The entity and all of its divisions are engaged solely in manufacturing operations. To qualify as reportable segment, the segment revenue should at least be what amount? A. 5,300,000 B. 4,100,000 C. 5,200,000 D. 4,000,000arrow_forwardPina Company is involved in four separate industries. The following information is available for each of the four industries. Operating Segment W a. X Y Z Total Revenue Revenue test. $57,246 9,860 24,675 6,919 $98,700 Operating Profit (Loss) $16,970 2,570 (3,260) Determine which of the operating segments are reportable based on the: W&X Reportable Segments 1,220 $17,500 Identifiable Assets $165,764 82,882 20,006 17,148 $285,800arrow_forwardA public owned entity assesses performance and makes operating decisions using the reportable segments total revenue of P7,700,000 and total profit and loss of P500,000. The total profit and loss including inter-segment profit of P50,000. In addition, the entity has P10,000 of common costs for the reportable segments that are not allocated in reports reviewed by the chief operating decision maker. For purposes of segment reporting, what amount should be reported as segment profit of the reportable segments? a. 460,000 b. 450,000 c. 510,000 d. 500,000arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education