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Presented below is an excerpt from the financial statements of H. J. Heinz Company.

Segment and Geographic Data

The company is engaged principally in one line of business—processed food products—which represents over 90% of consolidated sales. Information about the business of the company by geographic area is presented in the table below

There were no material amounts of sales or transfers between geographic areas or between affiliates, and no material amounts of United States export sales.

Foreign

(In thousands of U.S.

dollars)

Domestic

United Kingdom

Canada

Western Europe

Other

Total

Worldwide

Sales

\(2,381,054

\)547,527

\(216,726

\)383,784

\(209,354

\)1,357,391

$3,738,445

Operating income

246,780

61,282

34,146

29,146

25,111

146,685

396,465

Identifiable assets

1362,152

265,218

112,620

294,732

143,971

816,541

2,178,693

Capital expenditures

72,712

12,262

13,790

8,253

4,368

38,673

111,385

Depreciation expense

42,279

8,364

3,592

6,355

3,606

21,917

64,196

Instructions

(c) Why are sales by geographical area important to disclose?

Short Answer

Expert verified

Due to the political and economic instability of many countries, sales in these regions should be carefully disclosed.

Step by step solution

01

Meaning of Segment Reporting

The reporting of financial statements of a company's segments or divisions separately is called segment reporting. Publicly traded companies must provide segment data, while privately-owned companies are not obligated to do so.

02

Explaining the reason for sales by geographical area is important to disclose

Reporting sales by geographical area is extremely important. Many countries are politically and economically unstable, so sales in these regions should be carefully considered. On the other hand, sales to countries that appear to be politically and economically stable indicate that sales in these regions will continue at a higher rate.

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Most popular questions from this chapter

Picasso Company is a wholesale distributor of packaging equipment and supplies. The company’s sales have averaged about \(900,000 annually for the 3-year period 2015–2017. The firm’s total assets at the end of 2017 amounted to \)850,000.

The president of Picasso Company has asked the controller to prepare a report that summarizes the financial aspects of the company’s operations for the past 3 years. This report will be presented to the board of directors at their next meeting.

In addition to comparative financial statements, the controller has decided to present a number of relevant financial ratios which can assist in the identification and interpretation of trends. At the request of the controller, the accounting staff has calculated the following ratios for the 3-year period 2015–2017.

2015

2016

2017

Current ratio

1.80

1.89

1.96

Acid-test (quick) ratio

1.04

0.99

0.87

Accounts receivable turnover

8.75

7.71

6.42

Inventory turnover

4.91

4.32

3.42

Debt to assets ratio

51.0%

46.0%

41.0%

Long-term debt to assets ratio

31.0%

27.0%

24.0%

Sales to fixed assets (fixed asset turnover)

1.58

1.69

1.79

Sales as a percent of 2015 sales

1.00

1.03

1.07

Gross margin percentage

36.0%

35.1%

34.6%

Net income to sales

6.9%

7.0%

7.2%

Return on assets

7.7%

7.7%

7.8%

Return on common stockholders’ equity

13.6%

13.1%

12.7%

In preparation of the report, the controller has decided first to examine the financial ratios independent of any other data to determine if the ratios themselves reveal any significant trends over the 3-year period.

Instructions

c) Using the ratios provided, what conclusion(s) can be drawn regarding the company’s net investment in plant and equipment?

For each of the following subsequent events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose.

  1. Settlement of a tax case at a cost considerably in excess of the amount expected at year-end.
  2. Introduction of a new product line.
  3. Loss of assembly plant due to fire.
  4. Sale of a significant portion of the company’s assets.
  5. Retirement of the company president.
  6. Issuance of a significant number of ordinary shares.
  7. Loss of a significant customer.
  8. Prolonged employee strike.
  9. Material loss on a year-end receivable because of a customer’s bankruptcy.
  10. Hiring of a new president.
  11. Settlement of prior year’s litigation against the company (no loss was accrued).
  12. Merger with another company of comparable size.

The FASB requires a reconciliation between the effective tax rate and the federal government’s statutory rate. Of what benefit is such a disclosure requirement?

(Ratio Computations and Additional Analysis) Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two \(35,000 notes, which are due on June 30, 2018, and September 30, 2018. Another note of \)6,000 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn’s cash flow problems are due primarily to the company’s desire to finance a \(300,000 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years

BRADBURN CORPORATION

BALANCE SHEET

MARCH 31

Assets

2018

2017

Cash

\) 18,200

\( 12,500

Notes receivable

148,000

132,000

Accounts receivable (net)

131,800

125,500

Inventories (at cost)

105,000

50,000

Plant & Equipment (net of depreciation)

1,449,000

1,420,500

Total assets

\)1,852,000

\(1,740,500

Liabilities and Stockholders’ Equity

Accounts payable

\) 79,000

\( 91,000

Notes payable

76,000

61,500

Accrued liabilities

9,000

6,000

Common stock (130,000 shares, \)10 par)

1,300,000

1,300,000

Retained earnings*

388,000

282,000

Total liabilities and stockholders’ equity

\(1,852,000

\)1,740,500

Depreciation charges on the plant and equipment of \(100,000 and \)102,500 for fiscal years ended March 31, 2017, and 2018, respectively, are included in the cost of goods sold.

Instructions

A. Compute the following items for Bradburn Corporation.

5. Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2017 to 2018.

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:

a) Revenue test.

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