Adams Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated. ADAMS COMPANYIncome Statements for Year 2SegmentA B CSales$166,000 $250,000 $265,000 Cost of goods sold (126,000) (79,000) (77,000)Sales commissions (22,000) (23,000) (32,000)Contribution margin 18,000 148,000 156,000 General fixed operating expenses (allocation of president’s salary) (39,000) (50,000) (25,000)Advertising expense (specific to individual divisions) (5,000) (15,000) 0 Net income (loss)$(26,000) $83,000 $131,000 RequiredPrepare a schedule of relevant sales and costs for Segment A.Prepare comparative income statements for the company as a whole under two alternatives: (1) the retention of Segment A and (2) the elimination of Segment A.

Comparative Income Statements - It Is a Part Of The Books Of a Company And Is Also Shows The…

Answered: dams Company operates three segments.…

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter9: Metric-analysis Of Financial Statements

Section: Chapter Questions

Problem 9.2.1P

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Adams Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated.

ADAMS COMPANY
Income Statements for Year 2
Segment	A		B	C
Sales	$	166,000		$	250,000		$	265,000
Cost of goods sold		(126,000	)		(79,000	)		(77,000	)
Sales commissions		(22,000	)		(23,000	)		(32,000	)
Contribution margin		18,000			148,000			156,000
General fixed operating expenses (allocation of president’s salary)		(39,000	)		(50,000	)		(25,000	)
Advertising expense (specific to individual divisions)		(5,000	)		(15,000	)		0
Net income (loss)	$	(26,000	)	$	83,000		$	131,000

Required

Prepare a schedule of relevant sales and costs for Segment A.
Prepare comparative income statements for the company as a whole under two alternatives: (1) the retention of Segment A and (2) the elimination of Segment A.

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