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?

A) $14,000,000/$15,200,000
B) $14,000,000/$13,200,000
C) $12,000,000/$13,200,000
D) $12,000,000/$15,200,000

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?

A) $14,000,000/$15,200,000
B) $14,000,000/$13,200,000
C) $12,000,000/$13,200,000
D) $12,000,000/$15,200,000

Quizplus · Accepted Answer

To determine if Crisfield Company's reportable segments satisfy the 75% revenue test, we need to add the external sales revenue of Segment C and Segment D and then divide it by the total revenue of the company. 
External Sales Revenue of C = $4,000,000
External Sales Revenue of D = $8,000,000
Total External Sales Revenue = $4,000,000 + $8,000,000 = $12,000,000
Total Revenue = $12,000,000 + $1,600,000 + $400,000 = $13,200,000
($1,600,000 and $400,000 are sales to other segments and should not be included in the calculation for the 75% revenue test)

Therefore, 75% Revenue Test Ratio = Total External Sales Revenue / Total Revenue
= $12,000,000 / $13,200,000
= 0.9091 (rounded to four decimal places)

Since this ratio is above 0.75, Crisfield Company's reportable segments satisfy the 75% revenue test. Therefore the answer is choice C.

Crisfield Company Has Two Reportable Segments,C and D Segment C