Question

Randy Rivera, CFO of Stanford Corporation, a manufacturer of packaged retail food products, has reviewed the company's segment disclosures for the current year. In the first draft of the disclosures, the company reports information about four segments: cheese, snacks and crackers, pizza, and desserts and confectionery. He has suggested that the segment disclosures be expanded to include additional segments.
Randy notes that the cereals segment, included in the segment disclosures last year, is not included in the current year. Although the cereals segment reported a loss for the current year and suffered a significant decline in revenues as a result of a prolonged labor dispute, he believes that Stanford should continue to provide information about this segment. In addition, Stanford recently introduced a new product line, sports beverages. This operating segment is expected to expand rapidly and is highly profitable. Randy believes that shareholders would view its profitability positively if the sports beverage segment were included in the segment disclosures.
The accountant who prepared the segment information has reviewed the segment data with Randy. Revenues of the cereals segment and the sports beverage segment account for 9 percent and 6 percent of combined revenues of all segments, respectively. Each segment's assets are approximately 8 percent of the combined assets of all segments. The cereals segment was the only segment to record a loss, which amounted to 5 percent of the combined profit of all segments reporting profits. The sports beverage segment profit was 9 percent of this total.
After reviewing the data, Randy still believes that the inclusion of the two segments would improve the segment disclosures and has asked you to research the appropriateness of his suggestion.

Required
Obtain the most current accounting standards on accounting for segments. Write a memo to Randy responding to his suggestion that the segment disclosures be expanded to include the cereals and sports beverage segments. Support your recommendations with citations and quotations from the authoritative financial reporting standards.



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  • CreatedMay 23, 2014
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