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Chapter 24: 3E_b (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:

b) Operating profit (loss) test.

Short Answer

Expert verified

Segments W and X are reportable.

Step by step solution

01

Meaning of operating profit  

Operating profit is the revenue generated by a company's basic activities, excluding any financing or tax-related concerns. The notion is utilized to look at a company's earnings potential while disregarding all other variables.

02

Determining the operating segment that is reportable

Calculation of operating profit and (loss) test

Opeartingprofitandlosstest=Totalprofitandlossbyoperatingsegment×Opeartingrate=$15,000+$3,000+$1,000-$2,000×10%=$17,000×10%=$1,700

Segments W for $15,000 and X for $3,000, meet the test.

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Most popular questions from this chapter

What are the accounting problems related to the presentation of interim data?

Presently, the profession requires that earnings per share be disclosed on the face of the income statement. What are some disadvantages of reporting ratios on the financial statements?

What is the fair value option? Explain how use of the fair value option reflects application of the fair value principle.

The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period. In general, the results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year. The Board has concluded, however, that certain accounting principles and practices followed for annual reporting purposes may require modification at interim reporting dates so that the reported results for the interim period may better relate to the results of operations for the annual period.

Instructions

The following six independent cases present how accounting facts might be reported on an individual company’s interim financial reports. For each of these cases, state whether the method proposed to be used for interim reporting would be acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.

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Explain the meaning of the following terms: (a) common size analysis, (b) vertical analysis, (c) horizontal analysis, and (d) percentage analysis.
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