Problem V — Segment Reporting. (14 points) Baden Company is a diversified compan

Question

Problem V — Segment Reporting.                                                                                         (14 points)

Baden Company is a diversified company which has developed the following information about its five segments:

                                      SEGMENTS

                                              A                         B                   C                     D                     E        

Total sales                      $   800,000      $1,700,000      $   300,000      $   320,000      $   580,000

Operating profit (loss)        (270,000)          480,000             40,000          (300,000)           (10,000)

Identifiable assets            2,600,000        5,800,000        1,200,000        3,900,000        5,600,000

Instructions

Identify which segments are significant enough to warrant disclosure in accordance with FASB No. 131, "Reporting Disaggregated Information about a Business Enterprise," by applying the following quantitative tests:

            a.     Revenue test

            b.     Operating profit or loss test

            c.     Identifiable assets test

Problem V (a) Revenue Test Threshold: Satisfies? Segment A Segment B Segment C Segment D Segment E (b) Operating profit or loss test Threshold: Satisfies? Segment A Segment B Segment C Segment D Segment E (c) Identifiable assets test Threshold: Satisfies? Segment A Segment B Segment C Segment D Segment E Which segments are reportable? Reportable? Segment A Segment B Segment C Segment D Segment E

Explanation / Answer

10 per cent or more of the combined revenue

reported profit or loss is 10 per cent or more of the greater, in absolute amount

its assets are 10 per cent or more of the combined assets

(a) Revenue Test Threshold: Amount % Satisfies?

10 per cent or more of the combined revenue

Segment A          800,000 22% yes Segment B       1,700,000 46% yes Segment C          300,000 8% No Segment D          320,000 9% No Segment E          580,000 16% YEs Total 3700000 (b) Operating profit or loss test Threshold: Amount % Satisfies?

reported profit or loss is 10 per cent or more of the greater, in absolute amount

Segment A        (270,000) -50.0% Yes Segment B          480,000 88.9% Yes Segment C             40,000 7.4% No Segment D          300,000 55.6% Yes Segment E          (10,000) -1.9% No Total          540,000 (c) Identifiable assets test Threshold: Amount % Satisfies?

its assets are 10 per cent or more of the combined assets

Segment A       2,600,000 13.6% YEs Segment B       5,800,000 30.4% Yes Segment C       1,200,000 6.3% No Segment D       3,900,000 20.4% YEs Segment E       5,600,000 29.3% YEs Total    19,100,000 Which segments are reportable? Reportable? Segment A Yes Segment B YEs Segment C No Segment D Yes Segment E Yes

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