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Chapter 24: 7BE (page 1446)

Identifiable assets for the seven industry segments of Foley Corporation are:

Penley $ 500 Cheng 200

Konami 550 Takuhi 150

KSC 250 Molina 475

Red Moon 400

Based only on the identifiable assets test, which industry segments are reportable?

Short Answer

Expert verified

Penley, Konami, Red Moon, and Molina’s industries are reportable.

Step by step solution

01

Meaning of Segment Reporting

Segment reporting is a description of the working parts of a company's disclosures that accompany its financial statements. Segment reporting is mandatory for publicly traded companies, but not for privately-owned companies.

02

Determining the industry segments that are reportable

Total Asset is $2,525

Working Notes:

Totalassets=Totalvalueofallassetsofalldifferentindustries=$500+$550+$250+$400+$200+$150+$475=$2,525

Asset Test Value is $252.50

Working Notes:

Assettestvalue=Totalasset×assetrate=$2,525×10%=$252.50

This condition is met by Penley, Konami, Red Moon, and Molina because their identifiable assets are equal to or greater than $252.50.

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Most popular questions from this chapter

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

b) For each of the four entities, identify two financial ratios, from the ratios presented above that would be most valuable as a basis for its decision regarding Millay.

What quantitative materiality test is applied to determine whether a segment is significant enough to warrant separate disclosure?

An article in the financial press entitled “Important Information in Annual Reports This Year” noted that annual reports include a management’s discussion and analysis section. What would this section contain?

The following comment appeared in the financial press: “Inadequate financial disclosure, particularly with respect to how management views the future and its role in the marketplace, has always been a stone in the shoe. After all, if you don’t know how a company views the future, how can you judge the worth of its corporate strategy?” What are some arguments for reporting earnings forecasts?

Distinguish between ratio analysis and percentage analysis relative to the interpretation of financial statements. What is the value of these two types of analyses?
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