Raymack Manufacturing, headquartered in Michigan, is a manufacturer of equipment component parts used in a number of industries. The company's financial statements and related footnotes contain the required segment reporting. The financial statements are being analyzed by a bank lending officer to whom you report. The officer has asked you to respond to each of the following questions regarding segment reporting with a brief
memo.
1. Two of Raymack's reportable segments deal with components for fluid movement machinery. One of the segments designs and installs manufactured components, and the other segment inspects, maintains, and repairs the installed components. Why might these activities constitute two separate operating segments, when in fact they both have to do with components for fluid movement machinery?
2. The total net sales for all reportable and nonreportable segments is $789 million. After reducing reported consolidated revenues for any items that might relate to items not allocated to segments, the adjusted consolidated revenues are $776 million. Why are the segmental net sales still greater than the adjusted consolidated revenues?
3. Management has identified a total of five segments, reportable or not, with total pretax income of $235 million. However, consolidated pretax income is $263 million. What are some specific items that might explain this difference?
4. Where are taxes traceable to the reportable segments shown, and how might one go about estimating segmental performance on an after-tax basis?
5. The dollar value of total assets allocated to all segments is greater than the long-lived assets reported by geographical location. What items would likely account for that difference?
6. Why is it more likely that a return on assets could be calculated for a segment but a return on equity could not be calculated for a segment?
7. Assume a component is manufactured in Michigan and sold by a Michigan salesperson to a customer in Germany. Also assume that a component is manufactured in Spain and sold to a customer in Germany. If one of Raymack's geographical segments is European Countries, which of the above sales would be included in the net sales reported for that segment?
8. If you wanted to rank reportable segments in terms of growth over time, what segmental information might be most useful for that analysis?