Concept explainers
a.
Prepare a report for CHIC’s management evaluating whether the operating segments disclosures prepared by CHIC’s accountants comply with ASC 280.
a.
Explanation of Solution
Revenue test:
Automobiles | Trucks | Helicopters | Ships | |
Sales to outside parties | $ 4,007,304 | $ 3,796,432 | $ 1,411,235 | $ 1,003,809 |
Intersegment sales | $ 644,243 | $ 307,982 | — | — |
Total revenue of segment | $ 4,651,547 | $ 4,104,414 | $ 1,411,235 | $ 1,003,809 |
Table: (1)
Perform revenue test:
Revenue | Percentage | |
Automobiles | $ 4,651,547 | 41.63% |
Trucks | $ 4,104,414 | 36.74% |
Helicopters | $ 1,411,235 | 12.63% |
Ships | $ 1,003,809 | 8.99% |
Total | $ 11,171,005 | 100% |
Table: (2)
Segments with more than 10% of total revenues are automobiles, trucks, helicopters. Hence, these are the segments which are separately reportable.
Profit or loss test
Automobiles | Trucks | Helicopters | Ships | |
Revenues from Outsiders | $ 4,007,304 | $ 3,796,432 | $ 1,411,235 | $ 1,003,809 |
Intersegment Transfers | $ 644,243 | $ 307,982 | — | — |
Total revenues | $ 4,651,547 | $ 4,104,414 | $ 1,411,235 | $ 1,003,809 |
Less: Operating Expenses-external | $ 3,480,666 | $ 3,147,086 | $ 1,004,464 | $ 958,743 |
Operating Expenses-internal | $ 289,589 | $ 500,798 | $ 57,893 | $ 103,945 |
Total operating expenses | $ 3,770,255 | $ 3,647,884 | $ 1,062,357 | $ 1,062,688 |
Segmented Profit (Loss) | $ 881,292 | $ 456,530 | $ 348,878 | $ (58,879) |
Table: (3)
Perform profit or loss test
Profit | Loss | Percentage | |
Automobiles | $ 881,292 | 52.24% | |
Trucks | $ 456,530 | 27.06% | |
Helicopters | $ 348,878 | 20.68% | |
Ships | $ (58,879) | (3.49%) | |
Total | $ 1,686,700 | $ (58,879) | 100% |
Table: (4)
Segments more than 10% of profits are reportable. Hence, segments automobiles, trucks, helicopters are reportable.
Asset Test
Assets | Percentage | |
Automobiles | $ 3,987,776 | 39.90% |
Trucks | $ 3,209,078 | 32.11% |
Helicopters | $ 1,587,006 | 15.87% |
Ships | $ 1,209,970 | 12.10% |
Total | $ 9,993,830 | 100% |
Table: (5)
All the segments are reportable in assets test as all are more than 10% of total assets.
The operating segment disclosures prepared by CHIC’s accountants does not comply with ASC 280 as segment helicopters is not reportable in any case according to accountants.
b.
Prepare a revised operating segments note to comply with ASC 280. CHIC does not have any unusual or extraordinary items, significant noncash items other than
b.
Explanation of Solution
A revised operating segments note to comply with ASC 280
Automobiles | Trucks | Helicopters | Others | |
Revenues | $ 4,651,547 | $ 4,104,414 | $ 1,411,235 | $ 2,415,044 |
Segment profit (Loss) | $ 881,292 | $ 456,530 | $ 348,878 | $ 289,999 |
Assets | $ 3,987,776 | $ 3,209,078 | $ 1,587,006 | $ 2,796,976 |
Table: (6)
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Chapter 8 Solutions
Advanced Accounting - Standalone book
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