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Chapter 24: 3E_a (page 1447)

Carlton Company is involved in four separate industries. The following information is available for each of the four industries.

Operating Segment

Total Revenue

Operating Profit (Loss)

Identifiable Assets

W

\( 60,000

15,000

\)167,000

X

10,000

3,000

83,000

Y

23,000

(2,000)

21,000

Z

9,000

1,000

19,000

\(102,000

\)17,000

$290,000

Instructions

Determine which of the operating segments are reportable based on the:

a) Revenue test.

Short Answer

Expert verified

Segment W and segment Y both are reportable.

Step by step solution

01

Meaning of Operating Segments

Operating Segments requires specific classes of entities (basically those with publicly exchanged securities) to disclose data around their working segments, items and administrations, the topographical zones in which they work, and their major customers.

02

Determining the operating segment that is reportable

Calculation of revenue test

Revenuetest=Totalrevenues×rateofrevenues=$102,000×10%=$10,200


Segment W for $60,000 and segment Y for $23,000, both meet this test.

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Most popular questions from this chapter

Subsequent events are reviewed through which date under IFRS?

a) Statement of financial position date.

b) Sixty days after the year-end date.

c) Date of independent auditor’s opinion.

d) Authorization date of the financial statements

Edna Millay Inc. is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Millay and the industry averages for firms of similar size are presented below.

Edna Millay

2017 Industry

2015

2016

2017

Averages

Current ratio

2.09

2.27

2.51

2.24

Quick ratio

1.15

1.12

1.19

1.22

Inventory turnover

2.40

2.18

2.02

3.50

Net sales to stockholders’ equity

2.71

2.80

2.99

2.85

Return on common stockholders’ equity

0.14

0.15

0.17

0.11

Total liabilities to stockholders’ equity

1.41

1.37

1.44

0.95

Millay is being reviewed by several entities whose interests vary, and the company’s financial ratios are a part of the data being considered. Each of the parties listed below must recommend an action based on its evaluation of Millay’s financial position.

Archibald MacLeish Bank. The bank is processing Millay’s application for a new 5-year term note. Archibald MacLeish has been Millay’s banker for several years but must reevaluate the company’s financial position for each major transaction.

Robert Penn Warren. A brokerage firm specializing in the stock of electronics firms that are sold over-the-counter, Robert Penn Warren must decide if it will include Millay in a new fund being established for sale to Robert Penn Warren’s clients.

Working Capital Management Committee. This is a committee of Millay’s management personnel chaired by the chief operating officer. The committee is charged with the responsibility of periodically reviewing the company’s working capital position, comparing actual data against budgets, and recommending changes in strategy as needed.

Instructions

c) Discuss what the financial ratios presented in the question reveal about Millay. Support your answer by citing specific ratio levels and trends as well as the interrelationships between these ratios.

(Disclosure of Estimates) Nancy Tercek, the financial vice president, and Margaret Lilly, the controller, of Romine Manufacturing Company are reviewing the financial ratios of the company for the years 2017 and 2018. The financial vice president notes that the profit margin on sales ratio has increased from 6% to 12%, a hefty gain for the 2-year period. Tercek is in the process of issuing a media release that emphasizes the efficiency of Romine Manufacturing in controlling cost. Margaret Lilly knows that the difference in ratios is due primarily to an earlier company decision to reduce the estimates of warranty and bad debt expense for 2018. The controller, not sure of her supervisor’s motives, hesitates to suggest to Tercek that the company’s improvement is unrelated to efficiency in controlling cost. To complicate matters, the media release is scheduled in a few days.

Instructions

  1. What stakeholders might be affected by Tercek’s media release?

What approaches have been suggested to overcome the seasonality problem related to interim reporting?

Keystone Corporation’s financial statements for the year ended December 31, 2017, were authorized for issue on March 10, 2018. The following events took place early in 2018.

  1. On January 10, 10,000 ordinary shares of \(5 par value were issued at \)66 per share.
  2. On March 1, Keystone determined after negotiations with the taxing authorities that income taxes payable for 2017 should be \(1,320,000. At December 31, 2017, income taxes payable were recorded at \)1,100,000.

Instructions

Discuss how the preceding subsequent events should be reflected in the 2017 financial statements.
See all solutions

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