Determine the reportable segments by performing each applicable test and describe the procedure utilized to ensure that a sufficient number of segments are being separately disclosed.
Answer to Problem 37P
Computers, Maps, Travel and Finance are the reportable segment.
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
Books | Computers | Maps | Travel | Finance | |
Sales to outside parties | $ 121 | $ 696 | $ 416 | $ 314 | $ –0– |
Intersegment transfers | $ 24 | $ 240 | $ 39 | $ 118 | –0– |
Interest income- external | $ 60 | –0– | –0– | –0– | $ 37 |
Interest income- Intersegment loans | –0– | –0– | –0– | –0– | $ 147 |
Total revenue of segment | $ 205 | $ 936 | $ 455 | $ 432 | $ 184 |
Table: (1)
Perform revenue test:
Revenue | Percentage | |
Books | $ 205 | 9.26% |
Computers | $ 936 | 42.31% |
Maps | $ 455 | 20.56% |
Travel | $ 432 | 19.52% |
Finance | $ 184 | 8.31% |
Total | $ 2,212 | 100% |
Table: (2)
Segments with percentage more than 10% are reportable. These are computers, maps and travel.
2. Profit or loss test
Calculation of expenses of segments
Books | Computers | Maps | Travel | Finance | |
Operating expenses | $ 115 | $ 818 | $ 304 | $ 190 | $ 33 |
Expenses- Intersegment sales | $ 70 | $ 51 | $ 31 | $ 46 | –0– |
Interest expense- external | –0– | –0– | –0– – | –0– | $ 107 |
Interest expense-Intersegment loans | $ 21 | $ 71 | $ 38 | $ 17 | –0– |
Income tax expense (savings) | $ 12 | $ (41) | $ 27 | $ 31 | $ (8) |
Total expense of segments | $ 218 | $ 899 | $ 400 | $ 284 | $ 132 |
Table: (3)
Perform
Revenues | Expense | Profit | Loss | Percentage | |
Books | $ 205 | $ 218 | $ (13) | (4.45%) | |
Computers | $ 936 | $ 899 | $ 37 | 12.67% | |
Maps | $ 455 | $ 400 | $ 55 | 18.83% | |
Travel | $ 432 | $ 284 | $ 148 | 50.68% | |
Finance | $ 184 | $ 132 | $ 52 | 17.80% | |
Total | $ 2,212 | $ 1,933 | $ 292 | $ (13) | 100% |
Table: (4)
Segments of 10% or more of profits are reportable. These are computers, maps, travel and finance.
3. Asset Test
Perform asset test
Assets | Percentage | |
Books | $ 206 | 6.06% |
Computers | $ 1,378 | 40.55% |
Maps | $ 248 | 7.29% |
Travel | $ 326 | 9.59% |
Finance | $ 1,240 | 36.49% |
Total | $ 3,398 | 100% |
Table: (5)
Segments more than 10% of assets are reportable. These are computers and finance.
To ensure that a sufficient number of segments are being separately disclosed, 75% of consolidated revenues of four segments must be contributed from these four segments.
Calculate total consolidated revenues
Thus, consolidated revenues are $1,644
Calculate minimum threshold
Thus, minimum threshold is $1,233
Calculate consolidated revenues
The consolidated revenues of four segments are more than the 75% of consolidated revenues. Hence, all four segments are reportable.
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