a
Reportable segments: It is the process of deciding which operating segment is separately reportable and separate supplemental disclosures must be made. It is based on management’s classifications of each operating segment for internal evaluation of the financial position and operating performance of the enterprise.
The FASB specified three 10 percent significance rules to determine which of the operating segments shall have separately reported information. The separate disclosures are required for segments meeting at least one of the following tests:
- The segment revenue, including both external sales and intersegment sales, is 10 percent or more.
- The absolute value of segment’s profit or loss is 10 percent or more
- The segment’s assets are 10 percent or more of the total assets of all operating segments.
The profit or loss for each given geographical segments
a
Answer to Problem 13.17P
Operating profit:
- U.S $680.
- New Zealand $17.2
- Australia $85.2
Operating loss:
- Singapore $(2.4)
Explanation of Solution
Determination of reportable segment using 10 percent revenue test:
U.S. | New Zealand | Singapore | Australia | |
Sales to unaffiliated | $2,500 | $320 | $60 | $120 |
Inter area sales | 100 | 10 | ||
Total revenue | $2,600 | $320 | $70 | $120 |
Less: Operating expenses | 1,820 | 290 | 70 | 30 |
Allocated costs | 100 | 12.8 | 2.4 | 4.8 |
Operating profit (loss) | $680 | 17.2 | (2.4) | 85.2 |
Determination of allocated costs
b
Reportable segments: It is the process of deciding which operating segment is separately reportable and separate supplemental disclosures must be made. It is based on management’s classifications of each operating segment for internal evaluation of the financial position and operating performance of the enterprise.
The FASB specified three 10 percent significance rules to determine which of the operating segments shall have separately reported information. The separate disclosures are required for segments meeting at least one of the following tests:
- The segment revenue, including both external sales and intersegment sales, is 10 percent or more.
- The absolute value of segment’s profit or loss is 10 percent or more.
- The segment’s assets are 10 percent or more of the total assets of all operating segments.
The general reporting requirements related to the company’s geographical areas
b
Answer to Problem 13.17P
Revenue from external customers from Home County or Foreign Country shall be reported and long-lived assets in the home country and all the assets held in foreign countries must be reported.
Explanation of Solution
Revenue from external customers from the home country and from all customers of foreign countries is to be reported. If revenue from an external customer is material then it must be shown with separate disclosure.
Long-lived assets located in the home country and the total assets located in all foreign countries is to be reported. If the assets in any location are more than or equal to 10 percent of total assets then the amounts of assets held in that country shall be disclosed separately.
c
Reportable segments: It is the process of deciding which operating segment is separately reportable and separate supplemental disclosures must be made. It is based on management’s classifications of each operating segment for internal evaluation of the financial position and operating performance of the enterprise.
The FASB specified three 10 percent significance rules to determine which of the operating segments shall have separately reported information. The separate disclosures are required for segments meeting at least one of the following tests:
- The segment revenue, including both external sales and intersegment sales, is 10 percent or more.
- The absolute value of segment’s profit or loss is 10 percent or more.
- The segment’s assets are 10 percent or more of the total assets of all operating segments.
The separate reportable segments of the given geographical segments
c
Answer to Problem 13.17P
Domestic segment and New Zealand is separately reportable
Explanation of Solution
Determination of reportable segment using 10 percent revenue test:
Geographical area | Sales to unaffiliated customers | Percentage of consolidated revenue | Separately reportable |
Domestic | $2,500 | 83,3% | Yes |
New Zealand | 320 | 10.7% | Yes |
Singapore | 60 | 2% | No |
Australia | 120 | 4% | No |
Total | 3,000 | 100% |
Determination of reportable segment using 10 percent long lived assets test:
Geographical area | Sales to unaffiliated customers | Percentage of consolidated revenue | Separately reportable |
Domestic | $2,200 | 81.4% | Yes |
New Zealand | 280 | 10.4% | Yes |
Singapore | 140 | 5.2% | No |
Australia | 80 | 3% | No |
Total | 2,700 | 100% |
For both revenue and long lived assets test New Zealand operations are separately reportable
Want to see more full solutions like this?
Chapter 13 Solutions
ADV.FIN.ACCT.LL W/CONNECT+PROCTORIO PLUS
- Suppose that Kittle Co. is a U.S. based MNC that is considering setting up a subsidiary in Singapore. Kittle would like this subsidiary to produce and sell guitars locally in Singapore, and needs assistance with capital budgeting. The duration of this project is four years, with an initial investment of S$20,000,000 (Singapore dollars). Kittle Co. managers have also provided you with forecasted expense data, including variable cost per unit, total variable cost, annual lease expense, depreciation, as well as other fixed annual overhead expense, over the next four years. The following table shows the forecasted expense data along side the previous forecasts provided by Kittle management. Complete row 9 of the table, filling in the total expense for the project for each of the 4 years. 1. Demand 2. Price per Unit 3. Total Revenue 4. Variable Cost Per Unit 5. Total Variable Cost 6. Annual Lease Expense 7. Other Fixed Annual Expense 8. Noncash Expense (Depreciation) 9. Total Expense Year 0…arrow_forwardBillabong Fashion is based in Melbourne, Australia. Billabong Fashion has a subsidiary in Shanghai that generates RMB85 million in annual sales. Any earnings generated by the subsidiary are reinvested to support its operations. Belle Fashion is the close competitor of Billabong Fashion. Belle Fashion is a local Australian company located in Japan with annual export sale to Malaysia of about MYR 45 million. Based on the information provided, which firm is subject to a higher degree of translation exposure? Justify your answer with thorough explanation on both companies.arrow_forwardDue to rising labor costs in Malaysia, Domain Computer, based in Singapore, is considering shorting part of its production facilities from Malaysia to an emerging market, Vietnam, to better integrate its supply chain in the South east Asia region. John Lawson, the CFO of the company, estimates that Domain Computer needs to invest USD735,000 to acquire an existing factory in Vietnam and another USD285,000 in renovations and installation of new machineries. The cost of training new workers is estimated to be USD310,000. Andrew believes that the new factory will lead to an estimated USD928,000 savings in labor costs and another USD417,000 savings in logistics expenses. Required: Use cost-benefit analysis to recommend whether Domain Computer should shift parts of its production facilities from Malaysia to Vietnam. Explain your answer.arrow_forward
- Whitehill Chemicals has two operating divisions. Its Formulation Division in the United States mixes, processes, and tests basic chemicals, and then ships them to Ireland, where the company's Commercial Division uses the chemicals to produce and sell various products. Operating expenses amount to $27.2 million in the U.S. and $79.2 million in Ireland exclusive of the costs of any goods transferred from the U.S. Revenues in Ireland are $207 million. If the chemicals were purchased from one of the company's Irish mixing divisions, the costs would be $40.2 million. However, if it had been purchased from an independent U.S. supplier, the cost would be $53.2 million. The marginal income tax rate is 20 percent in the U.S. and 12 percent in Ireland. Required: What is the company's total tax liability to both jurisdictions for each of the two alternative transfer pricing scenarios ($40.2 million and $53.2 million)? Note: Enter your answers in dollars and not in millions of dollars. Total tax…arrow_forwardToro Company is expanding its US-based plastic molding plant as it continues to transfer work from Juarez, Mexico contractors. The plant bought a $1.1 million precision injection molding machine to make plastic parts for Toro lawn mowers, trimmers, and snow blowers. The plant expects to hire 12 people, including some engineers for the expansion. If the average loaded cost (i.e., including benefits) of each employee is $100,000 per year, determine the annual worth of the new systems over a five-year planning period at an interest rate of 10% per year. Assume a 20% salvage value for the new equipment. $-2,436,420 $-2,539,420 $-1,454,142 $-1,973,420arrow_forwardLTE Chem Co. is a small-size U.S. chemical company. Two divisions at the company, K1 and K2, are involved in an internal transfer of a chemical ingredient, KXB. Currently, K1 sells 10,000Kgs of KXB to K2 at a price of $ 14.50/kg. The manager at K1 claims that the cost of producing KXB has recently increased, proposing a new price of $ 16.00/Kg, which is the one he can realize by selling the ingredient to the market. K2 has recently approached an external supplier who can supply the 10,000Kgs at a cost of $ 15.10. The cost figures for producing a Kg of KXB at K1 are: Direct Materials. Direct Labor.. Variable Overhead Fixed Overhead $5.15 4.35 0.50 1.60 Required: a. Based on the figures above, what is the current acceptable range of prices for the 10,000Kgs? What would be the net loss or saving for the company as a whole if, on the other hand, K1 expects to forgo 5,000Kgs that could be sold at $ 16.00/Kg to external customers? b. Now assume that, to push external sales of KXB by K1,…arrow_forward
- 1. The company Cintas Adhesivas del Norte, S.A. wants to expand its production capacity in response to an increase in demand. For this purpose, it has initiated the respective investigations and has found that the available alternatives are: (a) Acquire a cutting machine in the US, at a cost of $1,000,000. This type of machine can cut at a rate of 1,000 m2/hour and requires a person whose hourly wage is $50 to operate it; and (b) Purchase 2 cutting machines in Germany at a cost of $350,000 each. This type of machine has a cutting rate of 500 m2/hour and requires one person (per machine) whose salary is $30/hour to operate it. Consider that the equipment has a life of technological use of 10 years, at the end of which the salvage value is estimated to be equal to 15% of the original purchase value of the equipment. Slicer EE. UU. Slicer Alemania INSURANCE COST/YEAR $80,000 $50,000 FIXED COST OF OPERATION/YEAR $10,000 $7,000 VARIABLE COST OF OPERATION/HOUR…arrow_forwardLTE Chem Co. is a small-size U.S. chemical company. Two divisions at the company, K1 and K2, are involved in an internal transfer of a chemical ingredient, KXB. Currently, K1 sells 10,000Kgs of KXB to K2 at a price of $ 14.50/kg. The manager at K1 claims that the cost of producing KXB has recently increased, proposing a new price of $ 16.00/Kg, which is the one he can realize by selling the ingredient to the market. K2 has recently approached an external supplier who can supply the 10,000Kgs at a cost of $ 15.10. The cost figures for producing a Kg of KXB at K1 are: Direct Materials.. Direct Labor.. Variable Overhead Fixed Overhead $5.15 4.35 0.50 1.60 Required: a. Based on the figures above, what is the current acceptable range of prices for the 10,000Kgs? What would be the net loss or saving for the company as a whole if, on the other hand, K1 expects to forgo 5,000Kgs that could be sold at $ 16.00/Kg to external customers? b. Now assume that, to push external sales of KXB by K1,…arrow_forwardEmbraer of Brazil is one of the two leading global manufacturers of regional jets (Bombbardler of Canada is the other). Regional jets are smaller than the traditional civilian airliners produced by Airbus and Boeing, seating between 50 and 100 people on average. Embraer has concluded an agreement with a regional U S airline to produce and deliver four aircraft one year from now for $78 Million. Although Embraer will be paid in U.S. Dollars. It also possesses a currency exposure of inputs- it must pay foreign suppliers $15 million for inputsone year from now (but they will be delivering the subcomponents throughtout the year). The cuurent spot rate on the Brazilian real (R$) is R$1.87/$, but it has been steadily appreciating against the US dollar over the past three years. Forward contracts are difficult to acquire and are considered expensive. Citibank Brasil has not explicity provided Embraer a forward rate quote, but has stated that it will probably be pricing a forward off the…arrow_forward
- Ariel Company for the manufacture of cotton clothes in Turkey sells 40% of its production in Turkey and sells 10% of its production in Arab countries, and 20% in European countries. The company is studying to find new markets for its products. The administration aims to bring its sales in Europe to 40%. In order to achieve this goal, it will have to invest heavily. In recent years, therefore, the company decided to build a new facility. The desired new location should be either in Jordan or Tunisia. The following are the data for the estimates related to each location. Jordan Tunis Initial investment $4,000,000 s3.000.000 Estimated useful life 10 years 10 years Annual cash inflows $1.300,000 5900,000 Annual cash outflows S600,000 $350,000 Annual revenues (accrual) s800,000 $600,000 Annual expenses (accrual) $400,000 $360,000 Estimated salvage value $600,000 Discount rate 12% 125 Instructions: (aCalculate the cash payback period for each alternative. (b) Calculate the net present value…arrow_forwardEmbraer of Brazil. Embraer of Brazil is one of the two leading global manufacturers of regional jets. (Bombardier of Canada is the other.) Regional jets are smaller than the traditional civilian airliners produced by Airbus and Boeing, seating between 50 and 100 people on average. Embraer has concluded an agreement with a regional U.S. airline to produce and deliver four aircraft one year from now for USD80 million. Although Embraer will be paid in U.S. dollars, it also possesses a currency exposure of inputs—it must pay foreign suppliers USD20 million for inputs one year from now (but they will be delivering the subcomponents throughout the year). The current spot rate on the Brazilian real (BRL) is BRL1.8240 = USD1.00, but it has been steadily appreciating against the U.S. dollar over the past three years. Forward contracts are difficult to acquire and are considered expensive. Citibank Brasil has not explicitly provided Embraer a forward rate quote but has stated that it will…arrow_forwardThe Gustavo Industries in São Paulo, Brazil, reported the following results for 2020 (currency in Brazilian real, R$): Sales R$ 400,000,000 Variable costs 320,000,000 Controllable fixed costs 40,800,000 Average operating assets 280,000,000 Gustavo’s Management is considering the following independent courses of action in 2021 in order to maximize the return on investment for this division: Option1: Reduce average operating assets by R$ 80,000,000 with no change in the controllable margin. Option2: Increase sales by R$ 80,000,000 with no change in the contribution margin percentage. Compute the controllable margin and the return on investment for 2020. Compute the controllable margin and the expected return on investment for each proposed option.arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning