Ecru Company has identified fi
Ecru Company has identified five industry segments: plastics,metals, lumber, paper, and finance.
It appropriately consolidated each of these segments inproducing its annual financial statements. Information describingeach segment (in thousands) follows:
| Plastics | Metals | Lumber | Paper | Finance | |||||||||||||||
| Sales to outside parties | $ | 6,895 | $ | 2,424 | $ | 746 | $ | 457 | $ | 0 | |||||||||
| Intersegment transfers | 164 | 187 | 152 | 164 | 0 | ||||||||||||||
| Interest income from outsideparties | 0 | 41 | 28 | 0 | 49 | ||||||||||||||
| Interest income fromintersegment loans | 0 | 0 | 0 | 0 | 215 | ||||||||||||||
| Operating expenses | 4,354 | 1,832 | 1,136 | 689 | 38 | ||||||||||||||
| Interest expense | 83 | 38 | 73 | 21 | 109 | ||||||||||||||
| Tangible assets | 1,571 | 3,266 | 594 | 841 | 214 | ||||||||||||||
| Intangible assets | 94 | 417 | 0 | 70 | 0 | ||||||||||||||
| Intersegment loans (debt) | 0 | 0 | 0 | 0 | 720 | ||||||||||||||
Ecru does not allocate its $1,390,000 in common expenses to thevarious segments.
Perform testing procedures to determine Ecru’s reportableoperating segments.
A. Revenue Test
| segmant | revenues | percentage | reported or not reported |
| plastics | |||
| metals | |||
| lumber | |||
| paper | |||
| finance | |||
| TOTAL: |
B. Profit of loss test:
| segmant | revenues | expenses | profit | loss | reported or not reported |
| plastics | |||||
|
metals |
|||||
| lumber | |||||
| paper | |||||
| finance | |||||
| TOTAL: |
C. Asset test
| segment | assets | percentage | reported or not reported |
| plastics | |||
| metals | |||
| plastics | |||
| paper | |||
| finance | |||
| TOTAL: |
Answer:
Ans-A- For the Revenue test,the total amount of revenue must bedetermined each segment:-
| Plastics | Metals | Lumber | Paper | Finance | Totals | |
| Sales | $6,895 | $2,424 | $746 | $457 | $0 | $10,522 |
| Intersegment Transfers | 164 | 187 | 152 | 164 | 0 | $667 |
| Interest income from outdside Parties | 0 | 41 | 28 | 0 | 49 | 118 |
| Interest income from intersegment loan | 0 | 0 | 0 | 0 | 215 | 215 |
| Totals | $7,059 | $2,652 | $926 | $621 | $264 | $11,522 |
Thresold= $11,522*10/100=$1,152.20
Any segment with a total revenue amount over the thresold isrecognised as reportable. The only two segments that are reportableare Plastics and Metals.
Ans-B-For Profie and Loss Test we have to determine the totalamount of revenues and expenses.The amount of revenue has alreadydetermined the amount of expenses is calculating as below:
| Plastics | Metals | Lumber | Paper | Finance | Totals | |
| Operating Expense | $4,354 | $1,832 | $1,136 | $689 | $38 | $8.049 |
| Interest Expense | 83 | 38 | 73 | 21 | 109 | 324 |
| Totals | $4,437 | $1,870 | $1,209 | $710 | $147 | $8,373 |
Determine the profit and loss for each segment:-
| Revenues | Expenses | Profit | Loss | |
| Plastics | $7,059 | ($4,437) | $2,622 | |
| Metals | $2,652 | ($1,870) | $782 | |
| Lumber | $926 | ($1,209) | $283 | |
| Paper | $621 | ($710) | $89 | |
| Finance | $264 | ($147) | $117 | |
| Totals | $3,521 | $372 |
Calculate the thresold:
Thresold=$3,521*10/100=$352.10
Any segment that has a profit or loss amount that is greaterthan or equal to the thresold amount is to be reported. the onlyamounts listed in the table are greater than or equal to thethresold are the Plastics and Metals.
Ans-C- Calculating the amount of total assets for each of thesegments:-
| Plastics | Metals | Lumber | Paper | Finance | Totals | |
| Tangible Assets | $1,571 | $3,266 | $594 | $841 | $214 | $6,486 |
| Intangible Assets | $94 | $417 | $0 | $70 | $0 | $581 |
| Intersegment loans | 0 | 0 | 0 | 0 | 720 | 720 |
| Totals | $1,665 | $3,683 | $594 | $911 | $934 | $7,787 |
Calculate the thresold:-
Thresold=$7,787*10/100=$778.70
The listed segments that meet this standard are thePlastics,Metals, Paper and the Finance segments.
These four segments meet at least one of the three tests and aretherefore considered reportable.
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