Chapter 8, Problem 36P

a.

To determine

Find the minimum revenue amount which any one segment must generate to be of significant size to require disaggregated disclosure.

Answer to Problem 36P

The minimum revenue amount which any one segment must generate to be of significant size to require disaggregated disclosure is $420,000.

Explanation of Solution

Calculate total revenue of all segments individually

	Red	Blue	Green	Pink	Black	White
Sales to outside parties	$          1,811	$             812	$            514	$           309	$          121	$      99
Intersegment revenues	$               16	$               91	$            109	–0–	$            16	$    302
Total	$          1,827	$             903	$            623	$           309	$          137	$    401

Table: (1)

Calculate total amount of revenue for all the segments

$\begin{array}{c}\text{Total}\text{amount}\text{of}\text{revenue for all segments}=\$1,827+\$903+\$623+\$309+\$137+\$401\\ =\$4,200\\ \text{Figures}\text{in}\text{thousands,}\text{then}\$4,200,000\end{array}$

Calculate minimum threshold

$\begin{array}{c}\text{Minimum}\text{threshold}=\$4,200,000\times 10\%\\ =\$420,000\end{array}$

Thus, minimum threshold is $420,000

Segments having revenue more than $420,000 are to be disclosed. These are red, blue and green.

b.

To determine

Determine is company F disclosing disaggregated data for enough segments.

Answer to Problem 36P

Yes, company F is disclosing disaggregated data for enough segments.

Explanation of Solution

Calculate total sales for the company

$\begin{array}{c}\text{Total}\text{sales}=\$1,811+\$812+\$514+\$309+\$121+\$99\\ =\$3,666\\ \text{Figures}\text{are}\text{in}\text{thousands,}\text{then}\$3,666,000\end{array}$

Calculate total sales for the three segments

$\begin{array}{c}\text{Total}\text{sales}\text{for}\text{three}\text{segments}=\$1,811+\$812+\$514\\ =\$3,137\\ \text{Figures}\text{are}\text{in}\text{thousands,}\text{then}\$3,137,000\end{array}$

Calculate percentage of sales that the segment represents over the total sales

$\begin{array}{c}\text{Percentage}\text{of}\text{sales}=\frac{\text{Total}\text{sales}\text{for}\text{three}\text{segments}}{\text{Total}\text{sales}}\\ \text{Percentage}\text{of}\text{sales}=\frac{\$3,137,000}{\$3,666,000}\\ =85.57\%\end{array}$

Thus, percentage of sales is 85.57%

The three segments must have 75% or more of total sales of the company. In this case, it is 85.5%. Hence, the three segments make up 85.6% of total sales of the company.

c.

To determine

Find the volume of revenues that must a single customer generate to necessitate disclosing the existence of a major customer.

Answer to Problem 36P

The volume of revenues that must a single customer generate to necessitate disclosing the existence of a major customer is $366,600.

Explanation of Solution

Major customer disclosure is based on total sales; it is 10% of total sales. Total sales are calculated in previous sub-part as $3,666,000.

Calculate major customer disclosure

$\begin{array}{c}\text{Major}\text{customer}\text{disclosure}=\$3,666,000\times 10\%\\ =\$366,600\end{array}$

Thus, major customer disclosure is $366,600

d.

To determine

Find which segment warrants separate disclosure if each of these six segments has a profit or loss.

Answer to Problem 36P

Segments red, blue, green and white warrants separate disclosure if each of these six segments has a profit or loss.

Explanation of Solution

Calculate total profits and loss

	Profit	Loss
Red	$          1,074
Blue	$             449
Green	$             140
Pink		$              (94)
Black		$            (222)
White	$             308
Total	$          1,971	$            (316)

Table: (2)

Profit is more, hence profit is used to calculate threshold.

Calculate minimum threshold

$\begin{array}{c}\text{Minimum}\text{threshold}=\$1,971,000\times 10\%\\ =\$197,100\end{array}$

Thus, minimum threshold is $197,100

Segment having profit more than 10% of profits is to be disclosed. These are red, blue, green and white.