Question

Carlton Company is involved in four separate industries. The following information is available for each of the four industries.

Operating Segment	Total Revenue	Operating Profit (Loss)	Identifiable Assets
W	\( 60,000	15,000	\)167,000
X	10,000	3,000	83,000
Y	23,000	(2,000)	21,000
Z	9,000	1,000	19,000
	\(102,000	\)17,000	$290,000

Instructions

Determine which of the operating segments are reportable based on the:

b) Operating profit (loss) test.

Short answer

Segments W and X are reportable.

Step-by-step solution

Meaning of operating profit  

Operating profit is the revenue generated by a company's basic activities, excluding any financing or tax-related concerns. The notion is utilized to look at a company's earnings potential while disregarding all other variables.

Determining the operating segment that is reportable

Calculation of operating profit and (loss) test

$\begin{array}{rcl}\mathrm{Opearting}\mathrm{profit}\mathrm{and}\mathrm{loss}\mathrm{test}& =& \mathrm{Total}\mathrm{profit}\mathrm{and}\mathrm{loss}\mathrm{by}\mathrm{operating}\mathrm{segment}\times \mathrm{Opearting}\mathrm{rate}\\ & =& \left(\$15,000+\$3,000+\$1,000-\$2,000\right)\times 10\%\\ & =& \$17,000\times 10\%\\ & =& \$1,700\end{array}$

Segments W for $15,000 and X for $3,000, meet the test.