Question

Finney Company's condensed income statement is presented below:

revenues		$1,000,000
expenses
cost of goods sold	$500,000
operating and administrative expenses	$300,000
Depreciation expense	$60,000	$860,000
Income before taxes		$140,000
income tax expense		$29,400
net income		$110,600
Earnings per share (100,000)		$1.11

The following data is compiled relative to Finney's operating Segments:

	Percent identified with Segment
	hotels	grains	Candy
revenues	42%	50%	8%
cost of goods sold	48%	49%	3%
operating and administrative expense	35%	50%	15%
depreciation expense	46%	42%	12%

Included in the amounts allocated to each segment on the above percentages are the following expenses which relate to general corporate activities:

		Operating Segment
	Hotels	Grains	candy	totals
operating and administrative expense	$15,000	$10,000	$4,000	$29,000
depreciation expense	$3,500	$5,000	$4,500	$13,000

Instructions:

(a) prepare a schedule showing the amounts distributed to each segment

(b) based only on the above information, which segments must be reported and why?

Answer 1

(a) prepare a schedule showing the amounts distributed to each segment

	Hotels	Grains	Candy	Total
Revenues	$420,000	$500,000	$80,000	$1,000,000
Expenses:
Cost of goods sold	$240,000	$245,000	$15,000	$500,000
Operating and admin exp	$94,850	$135,500	$40,650	$271,000
Depreciation Exp	$21,620	$19,740	$5,640	$47,000
Total Expense	$356,470	$400,240	$61,290	$818,000
Operating Profit	$63,530	$99,760	$18,710	$182,000

Revenues :

Hotels = ($1000000 * 42%) = $420000

Grains = ($1000000 * 50%) = $500000

Candy = ($1000000 * 8%) = $80000

Cost of Goods sold :

Hotels = ($500000 * 48%) = $240000

Grains = ($500000 * 49%) = $245000

Candy = ($500000 * 3%) = $15000

Operating and admin exp:

Hotels = ($271000 * 35%) = $94850

Grains = ($271000 * 50%) = $135500

Candy = ($271000 * 15%) = $40650

Depreciation Exp:

Hotels = ($47000 * 46%) = $21620

Grains = ($47000 * 42%) = $19740

Candy = ($47000 * 12%) = $5640

(b) based only on the above information, which segments must be reported and why?

Two segments i.e Grains and Hotels, must be reported as they satisfy the revenue test i.e, the segment's revenues are 10% or more of the combined revenues of all operating segments.

The Hotels and the Grains segments meet the 10% of the operating profit test.