Question

Mason Company has prepared consolidated financial statements for the current year and is now gathering information in connection with the following five operating segments it has identified.

	Company Total				Books				Computers				Maps				Travel				Finance
Sales to outside parties	$	1,669			$	163			$	730			$	439			$	337			$	0
Intersegment sales		511				35				274				50				152				0
Interest income—external		119				71				0				0				0				48
Interest income—intersegment loans		158				0				0				0				0				158
Assets		3,610				240				1,433				282				360				1,295
Operating expenses		1,518				126				852				295				201				44
Expenses—intersegment sales		242				81				62				42				57				0
Interest expense—external		118				0				0				0				0				118
Interest expense—intersegment loans		191				32				82				49				28				0
Income tax expense (savings)		100				46				(30	)			61				65				(42	)
General corporate expenses		89
Unallocated operating costs		114

Determine the reportable segments by performing each applicable test. (Figures are in thousands.)

1. Revenue test:

2. Profit or loss test:

3. Asset test:

Answer 1

Revenue Test:

Calculating the percentage of individual segment revenue:

Segments with a percentage of more than 10% are reportable which are Books, Computers, Maps, and Travel.

Profit and Loss test:

Deduct the expenses form the revenues and calculate profit for individual segments and total profit.

Segments with more than 10% of the total profit i.e $30.4 should be reported.

Asset Test:

Calculating the percentage of individual segment assets.

Segments having more than 10% of the total segment assets should be reportable.

Hence, computers and finance.

So,

We can see that five of the segments of Mason Company has met at least one of the above performance tests. Hence to determine whether a sufficient number of the segment is reportable, revenue from affiliated parties of these five segments must be reported.

The consolidated revenue is $1,818 ( $1,699 + $119 ). Hence the revenue from affiliated parties should contribute a minimum of $1,363.5 (75% of $1,818), which they do.