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Intermediate Accounting (Kieso)
Found in: Page 1446

Short Answer

Tina Bailey, a student of intermediate accounting, was heard to remark after a class discussion on segment reporting, “All this is very confusing to me. First we are told that there is merit in presenting the consolidated results, and now we are told that it is better to show segmental results. I wish they would make up their minds.” Evaluate this comment.

Tina Bailey should provide both types of information.

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Step by Step Solution

Meaning of Segment Reporting

The reporting of a company's operating sections within the disclosure with its financial statements is known as segment reporting. Segment reporting is mandatory for publicly traded entities, but not for privately traded compounds.

Explaining the effect of subsequent events that have on 2017 net income

It should be highlighted that the need to present actual results when a corporation discloses segmental data does not negate the need. People sometimes get confused because they understand that the business of segmentation reporting involves that a substantive claim should not be disclosed.

It appears that both types of data need to be provided. Consolidated information generally refers to financial position and profit, while segment information refers to the precise facts that make up the overall results.

Most popular questions for Business-studies Textbooks

Edna Millay Inc. is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Millay and the industry averages for firms of similar size are presented below.

Edna Millay

2017 Industry

2015

2016

2017

Averages

Current ratio

2.09

2.27

2.51

2.24

Quick ratio

1.15

1.12

1.19

1.22

Inventory turnover

2.40

2.18

2.02

3.50

Net sales to stockholders’ equity

2.71

2.80

2.99

2.85

Return on common stockholders’ equity

0.14

0.15

0.17

0.11

Total liabilities to stockholders’ equity

1.41

1.37

1.44

0.95

Millay is being reviewed by several entities whose interests vary, and the company’s financial ratios are a part of the data being considered. Each of the parties listed below must recommend an action based on its evaluation of Millay’s financial position.

Archibald MacLeish Bank. The bank is processing Millay’s application for a new 5-year term note. Archibald MacLeish has been Millay’s banker for several years but must reevaluate the company’s financial position for each major transaction.

Robert Penn Warren. A brokerage firm specializing in the stock of electronics firms that are sold over-the-counter, Robert Penn Warren must decide if it will include Millay in a new fund being established for sale to Robert Penn Warren’s clients.

Working Capital Management Committee. This is a committee of Millay’s management personnel chaired by the chief operating officer. The committee is charged with the responsibility of periodically reviewing the company’s working capital position, comparing actual data against budgets, and recommending changes in strategy as needed.

Instructions

c) Discuss what the financial ratios presented in the question reveal about Millay. Support your answer by citing specific ratio levels and trends as well as the interrelationships between these ratios.

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