Chapter 14

SEGMENT AND INTERIM FINANCIAL REPORTING

Answers to Questions

1              An operating segment is a component of an enterprise: (1) that engages in business activities from which it may earn revenues and incur expenses, either internal or external; (2) whose operating results are regularly reviewed by the enterprise’s chief operating decision maker and (3) for which discrete financial information is available.

2              A reportable segment is an operating segment, either single or aggregated, for which information has to be reported under FASB Statement No. 131. An operating segment is a reportable segment if (a) its revenue is 10 percent or more of the combined revenue of all operating segments, (b) its absolute operating profit or loss is 10 percent or more of the greater of combined operating profit of all segments that have operating profit or combined operating losses of all segments that have losses, or (c) its identifiable assets are 10 percent or more of the combined identifiable assets of all operating segments.

3              Segments not meeting one of these tests are subject to a reevaluation, and possible aggregation, if the combined revenue from sales to external customers of all reportable segments is less than 75 percent of consolidated revenue. Segments that are not reportable segments are combined with other business activities and reported under an “all other” category.

4              The 10 percent revenue test applies to the $480,000. Revenue for purposes of FASB Statement No. 131 includes revenue from both external and intersegment customers.

5              An industry segment is a reportable segment under the 10 percent operating profit test if its operating profit or loss, in absolute amount, equals or is greater than the greater of combined operating profits for all operating segments having operating profits or combined operating losses for all operating segments having operating losses.

6              A segment is a reportable segment under the 10 percent asset test if its assets are 10 percent or more of the combined assets of all operating segments. The allocation of general corporate assets depends on the internal operations of the enterprise. The key is the asset figure given to the chief operating decision maker on which he or she evaluates performance. If corporate assets are not allocated, they become part of the reconciliation between the reportable segments’ assets and consolidated assets.

7              A segment is a reportable segment under the 10 percent revenue test if its intersegment and external sales is 10 percent or more of the combined intersegment and external sales of all the operating segments.

8              No. If the combined revenue from sales to external customers is less than 75 percent of total consolidated revenues, additional operating segments must be identified as reportable segments until the 75 percent test is met. Either some of the remaining segments must be aggregated, if they meet the aggregation criteria, so that the combined segment meets the materiality criteria of 10%, or one or more of the five operating segments that were not reportable segments under the 10 percent tests must be identified as reportable segments.

9              The following information must be disclosed for reportable segments and for the remainder of the enterprise’s operating segments and other business activities in the aggregate:
a              Revenue, with separate amounts to unaffiliated and affiliated customers, and disclosure of the basis of accounting for intersegment sales.
b              Operating profit or loss, based on the information reviewed by the chief operating officer.
c              Identifiable assets for each reportable segment.
d              Interest revenue
e              Interest expense
f              Aggregate amount of depreciation, depletion, and amortization expense.
g              Unusual items as described in paragraph 26 of APB Opinion No. 30.
h              Equity in the net income of investees accounted for by the equity method.
i               Income tax expense or benefit.
j               Extraordinary items.
k              Significant noncash items other than depreciation, depletion, and amortization.

10           If the enterprise is segmented on a geographic basis, complete segment information would be supplied by country of operation. If a different criteria is used for segmentation, more limited geographic information is supplied. Revenues and long lived assets attributed to the country of domicile and all foreign operations are disclosed. Any single country with material operations exist must also be disclosed separately.

11           The fact and amount of revenue from each customer must be disclosed if 10 percent or more of an enterprise’s revenue is derived from that customer. If 10 percent or more of an enterprise’s revenue is derived from sales to the federal government, or to a state, local, or foreign governmental unit, that fact and the amount of revenue must be disclosed. The identity of the segment making such sales must be disclosed, but the customer need not be identified by name.

12           The requirements of FASB Statement No. 131 do apply to interim financial statements. Like other aspects of interim reporting, segment disclosure is more limited in the interim reports than in the annual reports. Required disclosure for each reportable segment in the interim reports include: (1) revenues from external customers, (2) intersegment revenues, (3) a measure of segment profit or loss, (4) total assets for which there has been a material change since the amount disclosed in the annual report, (5) a description of any changes in the basis for segmentation or the basis of measurement of segment profit or loss, (6) a reconciliation of total reportable segment profit or loss and consolidated income before income taxes.

13           An annual effective tax rate is computed as the sum of estimated income taxes for each quarter of the year, divided by the estimated income for the year. This approach spreads any progression in tax rates over the entire year in accordance with the integral theory of interim reporting.

14           The discrete theory assumes that each quarter is a separate and independent accounting period that stands alone. By contrast, the integral theory treats each interim period as an essential part of each annual period. The integral theory is required under GAAP reporting for interim reports.

15           APB Opinion No. 28 specifies that minimum disclosures for interim reports should include gross revenues, provision for income taxes, extraordinary items and cumulative-effect-type changes on a net-of-tax basis, and net income and related EPS amounts as basic reporting items. In addition, disclosures are required of seasonal cost and revenue, significant changes in income tax estimates, or changes in financial position, and material contingencies, extraordinary and unusual or infrequently occurring items.

SOLUTIONS TO EXERCISES

Solution E14-1

1	d	4	b
2	a	5	d
3	d	6	b

Solution E14-2

 

1     Revenue tests

 

	10% revenue test:
		Revenue from Affiliated	Reportable Segment
		and Unaffiliated Customers	Test Value $215,000
	Concrete and stone products	$  200,000	no
	Construction	500,000	yes
	Lumber and wood products	900,000	yes
	Building materials	500,000	yes
	Other	50,000	no
		$2,150,000
	75% revenue test:
		Combined Revenue from	Combined Revenue from
		Reportable Segments to	All Segments to
		Unaffiliated Customers	Unaffiliated Customers
	Concrete and stone products		$  200,000
	Construction	$  500,000	500,000
	Lumber and wood products	500,000	500,000
	Building materials	300,000	300,000
	Other		50,000
		$1,300,000	$1,550,000

 

Since the $1,300,000 combined revenue from reportable segments to unaffiliated customers is greater than 75% of $1,550,000 revenue for all unaffiliated customers ($1,162,500), no additional segments have to be reported.

 

2     Schedule for disclosing revenue by segment:

 

			Lumber
		Construction	and Wood	Building	Other	Totals
	Unaffiliated
	sales	$500,000	$500,000	$300,000	$250,000	$1,550,000
	Affiliated sales		$400,000	$200,000		600,000
	Total Sales	$500,000	$900,000	$500,000	$250,000	$2,150,000

 

3     Reconciliation of segment revenue to corporate revenue

 

	Total revenue of reportable segments	$1,900,000
	Other revenue	250,000
	Eliminations of intersegment revenue	(600,000)
	Total consolidated revenue	$1,550,000

 

Solution E14-3

 

Revenue test: 10% of combined revenues (total sales) = $68,800,000

 

      The food service industry, copper mine, and chemical industry are reportable segments under the revenue test because they each have revenue in excess of $68,800,000.

 

Operating profit test: 10% of the greater of the combined operating profit of all industries having operating profit ($88,500,000) or the combined operating loss of all industries having operating losses ($25,500,000).

 

      The food service industry, copper mine, chemical industry, and agricultural products industry are reportable segments because they each have operating profit or loss in excess of $8,850,000.

 

Asset test: 10% of combined assets ($638,000,000 total assets less $33,000,000 corporate assets) = $60,500,000.

 

      The food service industry and chemical industry are reportable segments because they have assets in excess of $60,500,000.

 

Reportable segments (those that meet at least one of the tests): food service industry, copper mine, chemical industry, and agricultural products industry.

 

 

Solution E14-4

 

Worldwide Corporation

Segment Revenue for 2006

(in thousands)

 

	United	Other
	States	Canada	Foreign
Sales to unaffiliated customers	$50,000	$18,000	$21,000
Intersegment sales	15,000	8,000	4,000
Total	$65,000	$26,000	$25,000

 

Since revenue from reportable operating segments of $68,000 is greater than 75% of consolidated revenue ($89,000), no additional segments need be reported.

 

Revenue Reconciliation:

 

Reportable Segments	$91,000
Other segments	25,000
Intersegment revenue	(27,000)
Consolidated revenue	$89,000

 

Solution E14-5    [AICPA adapted]

 

1     c

Revenue test value = $3,275  Industries A, B, C, and E

 

Operating profit test value = $580 Industries A, B, C, and E

 

Identifiable assets test value = $6,750  Industries A, B, C, D, and E

 

2     d

      Ten percent of combined revenues of all industry segments.

 

3     b

Revenue test value: 10% of sales to unaffiliated ($2,000) and affiliated ($600) customers = $260

 

4     b

Only Bix and Dil have total revenues 10% of $83,000 combined revenues:

 

            Bix $12,000 total revenue > $8,300

            Dil $59,000 total revenue > $8,300

 

5     d

If sales to a single customer total 10% or more of Grum’s reported revenues ($50,000,000 10%), major customer data should be disclosed.

 

6     a

If revenues generated by foreign operations in one country are material (10% or more) of consolidated revenue, Grum should report information about that country’s foreign operations.

 

7     c

The materiality criteria for reporting a segment based on revenue is 10 percent of total (both external and intersegment, eliminating b) revenue (not income eliminating a) of all operating segments (not just those reporting a profit, eliminating d).

 

8     b

Sales to other segments are always included in segment income. The other three options generally would not be included but any of them could be included. Inclusion would depend on whether it was included in the performance report evaluated by the chief operating decision maker.

 

Solution E14-6

 

1     c

Japan is the only foreign segment that has segmental revenues (including intersegment revenues) of over 10% of total segment revenues of $126,000.

 

2     c

		Assets		Test Value	Reportable Geographic Area
	United States	$100,000	<	$15,700	yes
	Canada	15,000	<	$15,700	no
	Germany	17,000	<	15,700	yes
	Japan	18,000	<	15,700	yes
	Mexico	4,000	<	15,700	no
	Other foreign	3,000
	Total foreign	$157,000

 

The test value to determine reportability is 10 percent of consolidated segment assets of $157,000, not total consolidated assets.

 

3     b

United States on all three tests, Japan on the revenue and asset tests, and Germany on the operating profit and asset tests.

 

 

Solution E14-7

 

1     d

 

2     c

 

3     d

		1st Quarter	2nd Quarter
	Income year to date	$120,000	$210,000
	Tax rate	34%	30%
		40,800	63,000
	Less: Tax in prior return periods	0	40,800
	Quarterly period tax expense	$ 40,800	$ 22,200

 

4     a

Estimated total taxes of $26,150 $110,000 estimated pretax income = 23.77%

 

 

Solution E14-8

 

Endicott Corporation

Schedule of Income by Quarter for 2006

 

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year   2006
Income year-to-date	$30,000	$70,000	$110,000	$150,000	$150,000
Quarterly period
income	$30,000	$40,000	$ 40,000	$ 40,000	$150,000
Income tax expense*	(8,350)	(11,133)	(11,133)	(11,134)	(41,750)
Net income	$21,650	$28,867	$ 28,867	$ 28,866	$108,250

 

*  Income tax expense computations:

 

   1st Quarter      $30,000 .278333 = $8,350

   2nd Quarter      $70,000 .278333 = $19,483 - $8,350 = $11,133

   3rd Quarter      $110,000 .278333 = $30,616 - $19,483 = $11,133

   4th Quarter      $150,000 .278333 = $41,750 - $30,616 = $11,134

Solution E14-9 [AICPA adapted]

 

1     b

The inventory loss was not expected to be temporary, and therefore, the decline was recognized in the first period. The subsequent recovery to the original cost is recognized in the third period.

 

2     b

The extraordinary loss of $70,000 has to be disclosed, and the annual insurance premium has to be allocated $25,000 per quarter.

 

3     d

The full $360,000 loss is included in the second quarter interim report because the loss is permanent.

 

4     a

An extraordinary loss is allocated to the quarter to which it relates. In this case the $300,000 extraordinary loss is assigned to the third quarter.

 

5     a

Under the integral theory each quarterly period is an integral part of each annual period. Thus, property taxes of $20,000 ($80,000 25%) and executive bonuses of $80,000 ($320,000 25%) should be allocated to each of the four quarters.

 

 

Solution E14-10

 

Current cost to replace 4,000 units at $8	$ 32,000
Historical cost of inventory liquidated 4,000 units at $5	20,000
Adjustment to cost of sales [4,000 units ($8 - $5)]	12,000
Cost of sales	550,000
Adjusted cost of sales for the first quarter	$562,000

 

SOLUTIONS TO PROBLEMS

 

Solution P14-1

 

1     Reportable segments under the 10% revenue test:

 

Test value is 10% of $1,158,000 total sales, or $115,800. Reportable industry segments include the apparel, furniture, lumber and wood products, and textiles segments.

 

2	Test value for 75% revenue test is the combined revenue   from sales to unaffiliated customers by all industry
	segments of $892,000 75% =	$669,000
	Reportable segments:
	Apparel	$164,000
	Furniture	208,000
	Lumber and wood products	175,000
	Textiles	50,000
	Total	$597,000

 

Sales to unaffiliated customers by the reportable industry segments of $597,000 is less than the $669,000 test value. Therefore, additional segments must be identified as reportable segments. The construction industry, as closest to the 10% criteria, should be included as a reportable segment.

 

3     Under the assumption that tobacco and paper share the majority of their operating characteristics they would be combined into one segment that now meets the 10% test and complies with the 75% criteria. Construction would no longer need to be reported. Note to disclose information about segment data:

 

		Sales to	Sales to
		Unaffiliated	Affiliated
		Customers	Customers	Total Sales
	Apparel	$  164,000	---	$  164,000
	Tobacco and paper	183,000		183,000
	Furniture	208,000	$  6,000	214,000
	Lumber and wood products	175,000	90,000	265,000
	Textiles	50,000	170,000	220,000
	Other segments	112,000	---	112,000
	Total revenue	$  892,000	$266,000	$1,158,000

 

      Reconciliation of Segment Revenue to Consolidated Revenue:

 

	Reportable segment revenue	$1,046,000
	Other revenue	112,000
	Intersegment revenue	(266,000)
	Consolidated revenue	$  892,000

 

Solution P14-2

 

1     Reportable segments

 

      Revenue test ($600,000 + $105,000) 10% = $70,500

	Reportable segments:	Food	$350,000
		Chemical	$150,000
		Beverages	$ 72,000

 

      Operating profit test ($85,000 + $10,000) 10% = $9,500

	Reportable segments:	Food	$ 45,000
		Chemical	$ 23,000
		Beverages	$ 18,000

 

      Asset test $645,000 10% = $64,500

	Reportable segments:	Food	$310,000
		Chemical	$150,000

 

2     Reportable segments test

 

      Test value $600,000 consolidated sales 75% = $450,000

 

	Unaffiliated sales:	Food	$300,000
		Chemical	110,000
		Beverages	62,000
		Total	$472,000

 

Sales by reportable segments ($472,000) are greater than the $450,000 test value and no additional reportable segments are required.

 

Solution P14-3

 

1     Operating segments (foreign geographic areas):

 

	Revenue test
					Reportable
				Test Value	Geographic
		Revenue		($240,000 10%)	Area
	Canada	$ 24,000	>	$24,000	yes
	Mexico	20,000	<	24,000	no
	Brazil	22,000	<	24,000	no
	South Africa	25,000	<	24,000	no
	United States	149,000			yes
		$240,000
	Asset test
				Test Valuea
		Assets		($250,000 10%)	Reportable
	Canada	$ 30,000	>	$25,000	yes
	Mexico	19,000	<	25,000	no
	Brazil	20,000	<	25,000	no
	South Africa	31,000		25,000	yes
	United States	150,000		25,000	yes

 

a  Total segment assets = $250,000.

 

	Profit test
				Test Valuea
		Profit		($50,000 10%)	Reportable
	Canada	$ 6,000		$5,000	yes
	Mexico	8,000		5,000	yes
	Brazil	5,000		5,000	yes
	South Africa	7,000		5,000	yes
	United States	24,000		5,000	yes

 

2     All five geographic segments (Canada, Mexico, Brazil, South Africa, and the United States) are reportable segments.

 

Solution P14-3 (continued)

 

3	Daton-Paulo Corporation
	Schedule of Operations in Different Geographic Segments
	for the year ended December 31, 2006

 

		United			South
		States	Mexico	Brazil	Africa	Canada	Total
	Sales to unaffil-
	iated customers	$120,000	$20,000	$22,000	$15,000	$13,000	$190,000
	Intersegment
	transfers	29,000			10,000	11,000
	Total revenue	$149,000	$20,000	$22,000	$25,000	$24,000	$240,000
	Operating profit	$ 24,000	$ 8,000	$ 5,000	$ 7,000	$ 6,000	$ 50,000
	Identifiable
	assets	$150,000	$19,000	$20,000	$31,000	$30,000	$250,000

 

	Reconciliations:
	Revenue:
	Total revenue of reportable segments	$240,000
	Other revenues	0
	Elimination of intersegment revenues	(50,000)
	Total consolidated revenues	$190,000
	Profit or Loss:
	Total profit or loss for reportable segments	$ 50,000
	Other profit or loss	0
	Elimination of intersegment profit and loss	0
	Unallocated amounts	0
	Consolidated income before taxes	$ 50,000
	Assets:
	Total assets for reportable segments	$250,000
	Other assets	55,000
	Consolidated total	$305,000

 

Solution P14-4

 

1     Reportable segments:

 

	Revenue test
		Sales to Affiliated
		and Unaffiliated			Reportable
		Customers		Test Value	Segment
	Foods	$  210	<	$240	no
	Soft drinks	1,060		240	yes
	Distilled spirits	570		240	yes
	Cosmetics	200	<	240	no
	Packaging	120	<	240	no
	Other (4 minor segments)	240
	Total revenue	$2,400

 

      75% revenue test

 

		Sales to Unaffiliated Customers
		Reportable Segments	All Segments
	Foods		$  180
	Soft drinks	$  900	900
	Distilled spirits	550	550
	Cosmetics		200
	Packaging		110
	Other (4 minor segments)		240
		$1,450	$2,180

 

      Since $1,450 < (75% $2,180), other reportable segments must be identified to bring the total revenue from unaffiliated customers for reportable segments up to $1,635.

 

      If no further aggregation is possible, a logical approach is to include cosmetics, the next largest segment in terms of sales to unaffiliated customers.

      If further aggregation of some of the otherwise non-reportable segments were possible (they met the majority of the aggregation criteria), a combined segment may then meet the reportability criteria and would be reported instead of cosmetics.

 

      The test: $900 + $550 + $200 = $1,650

 

      Since $1,650 > $1,635, the reportable segments are soft drinks, distilled spirits, and cosmetics.

 

Solution P14-4 (continued)

 

2	Mid-America Corporation
	Schedule of Sales to Affiliated and Unaffiliated Customers
	by Segments
	for the year ended December 31, 2006

 

		Soft Drinks	Distilled  Spirits	Cosmetics	Other Segments	Totals
	Sales to unaffiliated
	customers	$  900	$550	$200	$530	$2,180
	Sales to affiliated
	customers	160	20		40	220
	Total revenue	$1,060	$570	$200	$570	$2,400

 

	Reconciliation:
	Revenue from reportable segments	$1,830
	Other revenue	570
	Elimination of intercompany revenue	(220)
	Consolidated revenue	$2,180

 

3	Mid-America Corporation
	Disclosure of Revenue from Domestic and Foreign Operations
	for the year ended December 31, 2006

 

		United States	Total Foreign	Japan
	Sales to unaffiliated customers	$1,850	$330	$250
	Interarea sales	200	20
	Total revenue	$2,050	$350	$250

 

Solution P14-5

 

1     Reportable segments:

 

      Revenue test

 

		Identified Segment			Reportable
		Revenues		Test Value	Segment
	Food	$17,000		$7,400	yes
	Tobacco	17,000		7,400	yes
	Lumber	7,000	<	7,400	no
	Textiles	26,000		7,400	yes
	Furniture	7,000	<	7,400	no
		$74,000

 

      Operating profit test

 

		Before Tax	Operating			Reportable
		Profit	Loss		Test Value	Segment
	Food	$ 2,000			$1,050	yes
	Tobacco	4,000			1,050	yes
	Lumber		$(500)	<	1,050	no
	Textiles	3,000			1,050	yes
	Furniture	1,500			1,050	yes
		$10,500	$(500)

 

      Asset test

 

		Identifiable			Reportable
		Assets		Test Value	Segment
	Food	$19,000		$7,500	yes
	Tobacco	21,000		7,500	yes
	Lumber	6,000	<	7,500	no
	Textiles	22,000		7,500	yes
	Furniture	7,000	<	7,500	no
		$75,000

 

2     Food, tobacco, textile, and furniture segments are reportable segments.

 

Solution P14-5 (continued)

 

3		Sales to Unaffiliated Customers
		Reportable	All
		Segments	Segments
	Food	$12,000	$12,000
	Tobacco	10,000	10,000
	Lumber		7,000
	Textiles	18,000	18,000
	Furniture	7,000	7,000
		$47,000	$54,000

 

Since the $47,000 revenue from unaffiliated customers of previously identified reportable operating segments is greater than 75% consolidated revenue (75% $54,000 = $40,500), no additional reportable segments have to be identified.

4	Random Choice Company
	Schedule of Operations in Different Segments
	for the year ended December 31, 2006

 

					Furni-
		Food	Tobacco	Textiles	ture	Other	Total
	Revenues
	Sales to unaffili-
	ated customers	$12,000	$10,000	$18,000	$7,000	$7,000	$54,000
	Sales to affiliated
	customers	5,000	7,000	8,000			20,000
	Segment revenue	$17,000	$17,000	$26,000	$7,000	$7,000	$74,000
	Operating profit
	Segment operating
	profit	$ 4,000	$ 4,000	$ 5,000	$1,500	$ (500)	$14,000
	Assets
	Identifiable assets	$18,000	$19,000	$22,000	$7,000	$6,000	$72,000
	Depreciation	$ 1,000	$ 2,000	$ 3,000	$  500	$2,500	$ 9,000

 

	Reconciliation of revenue:
	Revenue from reportable segments	$ 67,000
	Revenue from equity investees	9,000
	Other revenue	7,000
	Intersegment eliminations	(20,000)
	Consolidated revenue	$ 63,000
	Reconciliation of income:
	Reportable segment income	$ 14,500
	Income from equity investees	9,000
	Other income	(500)
	Interest expense	(7,000)
	Consolidated income before taxes	$ 16,000
	Reconciliation of assets:
	Reportable segment assets	$ 66,000
	Other segment assets	6,000
	Investment in equity affiliates	60,000
	Corporate assets	4,000
	Consolidated assets	$136,000

 

Solution P14-6

 

Truetest Corporation

Schedule of Disclosures for Industry Segments

for the year ended December 31, 2006

 

	Chemical	Food	Drug
	Segment	Segment	Segment	Totals
Revenue
Sales to unaffiliated
customers	$125,000	$115,000	$120,000	$360,000
Intersegment sales	35,000	25,000		60,000
Total sales	160,000	140,000	120,000	420,000
Expenses
Cost of sales	$ 80,000	$ 70,000	$ 60,000
General expenses	15,000	10,000	10,000
Selling expenses	20,000	15,000	15,000
Interest expense	5,000		5,000
Total expenses	120,000	95,000	90,000
Segment operating profit	$ 40,000	$ 45,000	$ 30,000	125,000
Assets	$200,000	$180,000	$150,000	$530,000

 

Reconciliation of revenue:
Revenue from reportable segments	$  420,000
Revenue from equity investees	30,000
Interest revenue	10,000
Intersegment eliminations	(60,000)
Consolidated revenue	$  400,000
Reconciliation of income:
Reportable segment income	$  115,000
Income from equity investees	30,000
Interest income	10,000
Corporate expense	(5,000)
Minority interest income	(15,000)
Intersegment eliminations	(30,000)
Consolidated income before taxes	$  105,000
Reconciliation of assets:
Reportable segment assets	$  530,000
Investment in equity affiliates	300,000
Corporate assets	200,000
Elimination of intersegment balances	(30,000)
Consolidated assets	$1,000,000

 

Solution P14-7

 

1     Reportable segments

 

      Revenue test

 

					Operating
		Industry Segment		Test Value	Reportable
	Segment	Revenue		(10% $2,600,000)	Segment
	Food	$1,010,000		$260,000	yes
	Packing	560,000		260,000	yes
	Textile	630,000		260,000	yes
	All other	400,000
		$2,600,000

 

      Operating profit test

 

		Operating		Test Value	Reportable
	Segment	Profit		(10% $325,000)	Segment
	Food	$110,000		$32,500	yes
	Packing	110,000		32,500	yes
	Textile	30,000	<	32,500	no
	All other	75,000
		$325,000

 

      Asset test

 

				Segment
		Operating		Test Value	Reportable
	Segment	Assets		(10% $2,125,000)	Segment
	Food	$  750,000		$220,000	yes
	Packing	500,000		220,000	yes
	Textile	550,000		220,000	yes
	All other	400,000
		$2,200,000

 

Solution P14-7 (continued)

 

2	Colby Company
	Operations in Different Segments
	at or for the year ended December 31, 2006
	(Data in Thousands of Dollars)

 

		Food	Packing	Textile	Foreign	All
		Industry	Industry	Segments	Operation	Other	Totals
	Revenues
	Sales to unaffili-
	ated customers	$  950	$500	$300	$250	$400	$2,400
	Intersegment sales
	at market	60	60	30	50		200
	Segment sales	1,010	560	330	300	400	$2,600
	Total	$1,010	$560	$630	$300	$400
	Operating profit
	Segment operating
	profit	$  110	$110	$  5	$ 25	$ 75
	Income before taxes	$  110	$110	$  5	$ 25	$ 75	$  325
	Assets
	Identifiable assets	$  700	$500	$325	$200	$400	$2,125

 

	Reconciliation of revenue:
	Revenue from reportable segments	$2,200
	Other segment revenue	400
	Intersegment eliminations	(200)
	Income from equity investees	100
	Consolidated revenue	$2,500
	Reconciliation of income:
	Reportable segment income	$  250
	Other segment income	75
	Income from equity investees	100
	Interest expense	(20)
	Corporate expense	(25)
	Consolidated income before taxes	$  380
	Reconciliation of assets:
	Reportable segment assets	$1,725
	Other segment assets	400
	Investment in equity affiliates	1,000
	Corporate assets	50
	Consolidated assets	$3,175

 

Solution P14-8

 

Trotter Corporation

Schedule of Income by Quarter for 2006

 

1	First $50,000 20%	$ 10,000
	Remainder ($160,000 – 50,000) 34%	37,400
	Less amount subject to dividends received deduction
	($20,000 80% 34%)	(5,440)
	Total tax for the year	$ 41,960
	Total Income	$160,000
	Effective tax rate	26.225%

 

2		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year   2006
	Income year-to-date	$20,000	$50,000	$110,000	$160,000	$160,000
	Quarterly period
	income	$20,000	$30,000	$ 60,000	$ 50,000	$160,000
	Income tax expense*	(5,245)	(7,868)	(15,734)	(13,113)	(41,960)
	Net income	$14,755	$22,132	$ 44,266	$ 36,887	$118,040

 

*  Income tax expense computations:

 

   1st Quarter     $20,000 .26225 = $5,245

   2nd Quarter     $50,000 .26225 = $13,113 - $5,245 = $7,868

   3rd Quarter     $110,000 .26225 = $28,847 - $13,113 = $15,734

   4th Quarter     $160,000 .26225 = $41,960 - $28,847 = $13,113