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In: Accounting

C2. Blanton Corporation is comprised of five operating segments. Information about each of these segments is...

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.

Expert Solution

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

ekkarill92 answered 8 months ago

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