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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