In: Accounting
C2. Blanton Corporation is comprised of five operating segments. Information about each of these segments is as follows (in thousands):
Linens |
Kitchen |
Grocery |
Furniture |
Stationery |
||||||||||||||||||||||||
Sales to outsiders |
$ |
47 |
$ |
253 |
$ |
22 |
$ |
61 |
$ |
14 |
||||||||||||||||||
Intersegment transfers |
2 |
13 |
7 |
15 |
12 |
|||||||||||||||||||||||
Interest revenue - outsiders |
1 |
- |
2 |
4 |
- |
|||||||||||||||||||||||
Interest revenue - intersegment |
- |
3 |
- |
- |
11 |
|||||||||||||||||||||||
Operating expenses - outsiders |
58 |
207 |
20 |
51 |
13 |
|||||||||||||||||||||||
Operating expenses - intersegment |
1 |
10 |
3 |
8 |
11 |
|||||||||||||||||||||||
Interest expense |
- |
6 |
- |
1 |
- |
|||||||||||||||||||||||
Income taxes |
(2 |
) |
5 |
2 |
3 |
12 |
||||||||||||||||||||||
Tangible assets |
9 |
58 |
9 |
6 |
4 |
|||||||||||||||||||||||
Intangible assets |
- |
- |
2 |
4 |
- |
|||||||||||||||||||||||
Intersegment loans |
4 |
3 |
- |
- |
- |
|||||||||||||||||||||||
- |
Required:
A) Which operating segments are reportable under the revenue test?
B) What is the total amount of revenues in applying the revenue test?
C) Which operating segments are reportable under the profit or loss test?
D) In applying the profit or loss test, what is the minimum amount an operating segment must have in order to meet the profit or loss test for a reportable segment?
E) Which operating segments are reportable under the asset test?
F) In applying the asset test, what is the minimum amount an operating segment must have in order to meet the asset test for a reportable segment?
G) Which operating segments are reportable?
H) According to the test results for reportable segments, is there a sufficient number of reported segments or should any additional segments also be disclosed? Explain the reason for your conclusion.
Part A
Segment |
Revenues |
percentage |
Reportable / not reportable |
Linens (47+2+1) |
50 |
10.71% |
Reportable |
Kitchen (253+13+3) |
269 |
57.60% |
Reportable |
Grocery (22+7+2) |
31 |
6.64% |
not reportable |
Furniture (61+15+4) |
80 |
17.13% |
Reportable |
Stationery (14+12+11) |
37 |
7.92% |
not reportable |
Total |
467 |
100.00% |
|
Revenue = Sales to outsiders+Intersegment transfers+Interest revenue – outsiders+Interest revenue – intersegment
Percentage = segment revenue / total revenue
Part B
Segment |
Revenues |
Linens (47+2+1) |
50 |
Kitchen (253+13+3) |
269 |
Grocery (22+7+2) |
31 |
Furniture (61+15+4) |
80 |
Stationery (14+12+11) |
37 |
Total |
467 |
Part C
Segment |
Revenues |
Expenses |
Profits |
losses |
Reportable / not reportable |
|
Linens (47+2+1) |
50 |
57 |
7 |
Reportable |
||
Kitchen (253+13+3) |
269 |
228 |
41 |
Reportable |
||
Grocery (22+7+2) |
31 |
25 |
6 |
not reportable |
||
Furniture (61+15+4) |
80 |
63 |
17 |
Reportable |
||
Stationery (14+12+11) |
37 |
36 |
1 |
not reportable |
||
Total |
467 |
409 |
65 |
7 |
Expenses = Operating expenses – outsiders+ Operating expenses – intersegment+ Interest expense+ Income taxes
Part D
minimum amount = 65*10% = 6.5
Part E
Segment |
Revenues |
percentage |
Reportable / not reportable |
Linens |
13 |
13.13% |
Reportable |
Kitchen |
61 |
61.62% |
Reportable |
Grocery |
11 |
11.11% |
Reportable |
Furniture |
10 |
10.10% |
Reportable |
Stationery |
4 |
4.04% |
|
Total |
99 |
100.00% |
Part F
minimum amount = 99*10% = $9.9
Part G
Linens |
All three tests |
Kitchen |
All three tests |
Grocery |
Asset test |
Furniture |
All three tests |
Part H
According to reportable tests, there are a sufficient number of reportable segments as 75% of total sales to outsiders, 75% of 397 (47+253+22+61+14) is $298, and the total sales to outsiders of four reportable segments is $383 (47+253+22+61). $383 is higher than the threshold for the 75% test