Question

Cineplex Corporation is a diversified company that operates in five different industries: A, B, C, D, and E. The following information relating to each segment is available for 2018.

	A	B	C	D	E
Sales revenue	\(40,000	\)75,000	\(580,000	\)35,000	\(55,000
Cost of goods sold	19,000	50,000	270,000	19,000	30,000
Operating expenses	10,000	40,000	235,000	12,000	18,000
Total expenses	29,000	90,000	505,000	31,000	48,000
Operating profit (loss)	\)11,000	\((15,000)	\)75,000	\(4,000	\)7,000
Identifiable assets	\(35,000	\)80,000	\(500,000	\)65,000	\(50,000

Sales of segments B and C included intersegment sales of \)20,000 and $100,000, respectively.

Instructions

(a) Determine which of the segments are reportable based on the:

1. Revenue test.

Short answer

Segment C is reportable.

Step-by-step solution

Meaning of Revenue

Revenue is the profit a firm makes from its operations. Product sales, consultancy fees, other services, rent, and even commission-based fees are all examples of income sources.

Determining the segments that are reportable

The revenue test is computed as $78,500.

Working Notes:

$\begin{array}{rcl}\mathrm{Revenue}\mathrm{test}\mathrm{amount}& =& \mathrm{Total}\mathrm{revenue}\times \mathrm{revenue}\mathrm{rate}\\ & =& \left(\$40,000+\$75,000+\$580,000+\$35,000+\$55,000\right)\times 10\%\\ & =& \$785,000\times \frac{10}{100}\\ & =& \$78,500\end{array}$

Only Segment C ($580,000) meet this test.