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:

2) Operating profit (loss) test.

Short answer

Segments A and C are reportable.

Step-by-step solution

Meaning of Operating profit

The sum of all income sources minus the cost of selling and all other operational expendituresis known as operating profit. It is responsible for all income and costs arising from the fundamental business operations of the company that is necessary to keep the firm running.

Determining the segments that are reportable

The operating profit (loss) test is $8,200

Working Notes:

$\begin{array}{rcl}\mathrm{Operating}\mathrm{profit}\left(\mathrm{loss}\right)\mathrm{test}& =& \mathrm{Total}\mathrm{operating}\mathrm{and}\mathrm{loss}\times \mathrm{rate}\\ & =& \left(\$11,000+\$75,000+\$4,000+\$7,000-\$15,000\right)\times 10\%\\ & =& \$82,000\times 10\%\\ & =& \$8,200\end{array}$

Segment A ($11,000), C ($75,000) all meet this test.