Concept explainers
a.
Prepare a report for CHIC’s management evaluating whether the operating segments disclosures prepared by CHIC’s accountants comply with ASC 280.
a.
Explanation of Solution
Revenue test:
Automobiles | Trucks | Helicopters | Ships | |
Sales to outside parties | $ 4,007,304 | $ 3,796,432 | $ 1,411,235 | $ 1,003,809 |
Intersegment sales | $ 644,243 | $ 307,982 | — | — |
Total revenue of segment | $ 4,651,547 | $ 4,104,414 | $ 1,411,235 | $ 1,003,809 |
Table: (1)
Perform revenue test:
Revenue | Percentage | |
Automobiles | $ 4,651,547 | 41.63% |
Trucks | $ 4,104,414 | 36.74% |
Helicopters | $ 1,411,235 | 12.63% |
Ships | $ 1,003,809 | 8.99% |
Total | $ 11,171,005 | 100% |
Table: (2)
Segments with more than 10% of total revenues are automobiles, trucks, helicopters. Hence, these are the segments which are separately reportable.
Profit or loss test
Automobiles | Trucks | Helicopters | Ships | |
Revenues from Outsiders | $ 4,007,304 | $ 3,796,432 | $ 1,411,235 | $ 1,003,809 |
Intersegment Transfers | $ 644,243 | $ 307,982 | — | — |
Total revenues | $ 4,651,547 | $ 4,104,414 | $ 1,411,235 | $ 1,003,809 |
Less: Operating Expenses-external | $ 3,480,666 | $ 3,147,086 | $ 1,004,464 | $ 958,743 |
Operating Expenses-internal | $ 289,589 | $ 500,798 | $ 57,893 | $ 103,945 |
Total operating expenses | $ 3,770,255 | $ 3,647,884 | $ 1,062,357 | $ 1,062,688 |
Segmented Profit (Loss) | $ 881,292 | $ 456,530 | $ 348,878 | $ (58,879) |
Table: (3)
Perform profit or loss test
Profit | Loss | Percentage | |
Automobiles | $ 881,292 | 52.24% | |
Trucks | $ 456,530 | 27.06% | |
Helicopters | $ 348,878 | 20.68% | |
Ships | $ (58,879) | (3.49%) | |
Total | $ 1,686,700 | $ (58,879) | 100% |
Table: (4)
Segments more than 10% of profits are reportable. Hence, segments automobiles, trucks, helicopters are reportable.
Asset Test
Assets | Percentage | |
Automobiles | $ 3,987,776 | 39.90% |
Trucks | $ 3,209,078 | 32.11% |
Helicopters | $ 1,587,006 | 15.87% |
Ships | $ 1,209,970 | 12.10% |
Total | $ 9,993,830 | 100% |
Table: (5)
All the segments are reportable in assets test as all are more than 10% of total assets.
The operating segment disclosures prepared by CHIC’s accountants does not comply with ASC 280 as segment helicopters is not reportable in any case according to accountants.
b.
Prepare a revised operating segments note to comply with ASC 280. CHIC does not have any unusual or extraordinary items, significant noncash items other than depreciation and amortization, or equity method affiliates.
b.
Explanation of Solution
A revised operating segments note to comply with ASC 280
Automobiles | Trucks | Helicopters | Others | |
Revenues | $ 4,651,547 | $ 4,104,414 | $ 1,411,235 | $ 2,415,044 |
Segment profit (Loss) | $ 881,292 | $ 456,530 | $ 348,878 | $ 289,999 |
Assets | $ 3,987,776 | $ 3,209,078 | $ 1,587,006 | $ 2,796,976 |
Table: (6)
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Chapter 8 Solutions
Advanced Accounting (Looseleaf)
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