Question
In: Accounting
Perth Corporation has two operating divisions, a casino and a hotel. The two divisions meet the...
Perth Corporation has two operating divisions, a casino and a
hotel. The two divisions meet the requirements for segment
disclosures. Before transactions between the two divisions are
considered, revenues and costs are as follows:
| Casino | Hotel | |||||
| Revenues | $ | 35,000,000 | $ | 21,000,000 | ||
| Costs | 16,000,000 | 13,000,000 | ||||
The casino and the hotel have a joint marketing arrangement by
which the hotel gives coupons redeemable at casino slot machines
and the casino gives discount coupons good for stays at the hotel.
The value of the coupons for the slot machines redeemed during the
past year totaled $5,000,000. The discount coupons redeemed at the
hotel totaled $1,000,000. As of the end of the year, all coupons
for the current year expired.
Required:
What are the operating profits for each division considering the effects of the costs arising from the joint marketing agreement? (Enter your answers in thousands.)
Operating Profits
casino
hotel
Solutions
Expert Solution
| ($000) | ($000) | |
| Particulars | Casino | Hotel |
| Revenue | ||
| Outside revenue | 35,000 | 21,000 |
| Transfer price | 5,000 | 1,000 |
| Total revenue | 40,000 | 22,000 |
| Less: | ||
| Outside costs | 16,000 | 13,000 |
| Transfer | 1,000 | 5,000 |
| Total costs | 17,000 | 18,000 |
| Operating profit before tax | 23,000 | 4,000 |
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