Mason Company has prepared consolidated financial statements for the current yea
ID: 2601526 • Letter: M
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.
Determine the reportable segments by performing each applicable test. (Figures are in thousands.)
Revenue test:
Profit or loss test:
Asset test:
CompanyTotal Books Computers Maps Travel Finance Sales to outside parties $ 1,704 $ 172 $ 746 $ 444 $ 342 $ 0 Intersegment sales 541 40 284 55 162 0 Interest income—external 127 74 0 0 0 53 Interest income—intersegment loans 163 0 0 0 0 163 Assets 3,666 250 1,457 292 347 1,320 Operating expenses 1,529 131 862 281 206 49 Expenses—intersegment sales 262 86 67 47 62 0 Interest expense—external 123 0 0 0 0 123 Interest expense—intersegment loans 211 37 87 54 33 0 Income tax expense (savings) 125 56 (25 ) 71 75 (52 ) General corporate expenses 99 Unallocated operating costs 124
Explanation / Answer
Revenue test: To be reportable, a segment should have 10% or more of the combined revenue of all segments. Total revenue includes both external revenue and revenue from intersegment transactions. Total revenue of the company=1704+541+53+163=2461 (Exclude interest income of books) Segment Revenues % Books 212 8.61% Not reportable (172+40) Computers 1030 41.85% Reportable (746+284) Maps 499 20.28% Reportable (444+55) Travel 504 20.48% Reportable (342+162) 212 Finance 216 8.78% Not reportable (53+163) Profit or loss test: To be reportable, a segment should have 10% or more of the combined profit (or combined loss if greater) of all segments reporting a profit. Books Computers Maps Travel Finance Revenues: Sales to outside parties 172 746 444 342 0 Intersegment sales 40 284 55 162 0 Interest income—external 74 0 0 0 53 Interest income—intersegment loans 0 0 0 0 163 Total (A) 286 1030 499 504 216 Less: Expenses Operating expenses 131 862 281 206 49 Expenses—intersegment sales 86 67 47 62 0 Interest expense—external 0 0 0 0 123 Interest expense—intersegment loans 37 87 54 33 0 Income tax expense (savings) 56 -25 71 75 -52 Total (B) 310 991 453 376 120 Profit/(Loss) -24 39 46 128 96 Combined total of profit=39+46+128+96=309 Combined total of loss=24 Greater of combined profit or loss=309 Segment Profit/(loss) % Books 24 7.77% Not reportable Computers 39 12.62% Reportable Maps 46 14.89% Reportable Travel 128 41.42% Reportable Finance 96 31.07% Reportable Asset test: To be reportable, a segment should have 10% or more of the total asset. Total asset=3666 Segment Profit/(loss) % Books 250 6.82% Not reportable Computers 1457 39.74% Reportable Maps 292 7.97% Not reportable Travel 347 9.47% Not reportable Finance 1320 36.01% Reportable 4 segments satisfy 3 different tests These 4 segments has to constitute 75% of consolidated revenues Consolidated revenue=Sales to outside parties+interest income-external=1704+127=1831. Segment External revenue Computers 746 Maps 444 Travel 342 Finance 53 Total 1585 86.56% 75% test also satisfied Hence, These 4 segments are reportable segments