ADV. ACCT CONNECT STAND ALONE
13th Edition
ISBN: 9781266295744
Author: Hoyle
Publisher: MCG
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Question
Chapter 8, Problem 35P
To determine
Perform testing procedures to determine company E’s reportable operating segments.
Expert Solution & Answer
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.
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Chevalier does not allocate its $1,460,000 in common expenses to the various segments.
Required:
a1. Perform revenue test procedure to determine Chevalier's reportable operating segments.
a2. Perform profit or loss test procedure to determine Chevalier's reportable operating segments.
a3. Perform asset test…
Chapter 8 Solutions
ADV. ACCT CONNECT STAND ALONE
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