Question

Crisfield Company has two reportable segments, C and D. Segment C made $4,000,000 of sales to external customers and $400,000 of sales to other operating segments. Segment D, on the other hand, made sales of $8,000,000 to external customers and $1,600,000 of sales to other operating segments. Crisfield Company reported $13,200,000 of revenues on its consolidated income statement. What calculation below correctly determines whether Crisfield Company's reportable segments satisfy the 75% revenue test?

Answer 1

To determine whether Crisfield Company's reportable segments satisfy the 75% revenue test, we need to calculate the revenue generated by each segment as a percentage of the total revenue of the company.

Step-by-step explanation:

To determine whether Crisfield Company's reportable segments satisfy the 75% revenue test, we need to calculate the revenue generated by each segment as a percentage of the total revenue of the company.

The revenue for segment C is the sum of the sales to external customers ($4,000,000) and the sales to other operating segments ($400,000), which is $4,400,000. This represents approximately 33.33% of the total revenue ($4,400,000 / $13,200,000 = 0.3333).

The revenue for segment D is the sum of the sales to external customers ($8,000,000) and the sales to other operating segments ($1,600,000), which is $9,600,000. This represents approximately 72.73% of the total revenue ($9,600,000 / $13,200,000 = 0.7273).

Adding the percentages of segment C and segment D, we get 33.33% + 72.73% = 106.06%. Since this exceeds 100%, both reportable segments of Crisfield Company satisfy the 75% revenue test.