Question

Operating profits and losses for the seven industry segments of Foley Corporation are:

Penley $ 90 Cheng 20

Konami 40 Takuhi (34)

KSC (25) Molina 150

Red Moon 50

Based only on the operating profit (loss) test, which industry segments are reportable?

Short answer

Penley, Konami, and Red Moon industries are reportable.

Step-by-step solution

Meaning of Segment Declaration

The process of disclosing the financial data of the divisions of a business entity in the statement of financial statements is known as segment declaration. It is useful to outline the major operational divisions.

Determining the industry segments that are reportable

Total Profits of Profitable segments is $349.

Working Notes:

$\begin{array}{rcl}\mathrm{Total}\mathrm{profit}& =& \mathrm{Profit}\mathrm{of}\mathrm{all}\mathrm{industries}\\ & =& \$90+\$25+\$50+\$34+\$150\\ & =& \$349\end{array}$

The profit and loss Test is $34.9.

Working Notes:

$\begin{array}{rcl}\mathrm{Profit}\mathrm{and}\mathrm{loss}\mathrm{test}& =& \mathrm{Total}\mathrm{profit}\times \mathrm{profit}\mathrm{rate}\\ & =& \$349\times 10\%\\ & =& \$34.9\end{array}$

This condition is met by Penley, Konami, Red Moon, and Molina because their absolute profit or loss is equal to or greater than $34.90.