At December 31, 2025, Coburn Corp. has assets of $10,000,000, liabilities of $6,000,000, common stock of $2,000,000 (representing 2,000,000 shares of $1 par common stock), and retained earnings of $2,000,000. Net sales for the year 2025 were $18,000,000, and net income was $800,000. As auditors of this company, you are making a review of subsequent events on February 13, 2026, and you find the following.

1. On February 3, 2026, one of Coburn’s customers declared bankruptcy. At December 31, 2025, this company owed Coburn $300,000, of which $60,000 was paid in January 2026.

2. On January 18, 2026, one of the three major plants of the client burned.

3. On January 23, 2026, a strike was called at one of Coburn’s largest plants, which halted 30% of its production. As of today (February 13), the strike has not been settled.

4. A major electronics company has introduced a line of products that would compete directly with Coburn’s primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor has been able to achieve quality similar to that of Coburn’s products but at a price 50% lower. Coburn officials say they will meet the lower prices, which are high enough to cover variable manufacturing and selling costs but which permit recovery of only a portion of fixed costs.

5. Merchandise traded in the open market is recorded in the company’s records at $1.40 per unit on December 31, 2025. This price had prevailed for 2 weeks, after release of an official market report that predicted vastly enlarged supplies; however, no purchases were made at $1.40. The price throughout the preceding year had been about $2, which was the level experienced over several years. On January 18, 2026, the price returned to $2, after public disclosure of an error in the official calculations of the prior December, correction of which destroyed the expectations of excessive supplies. Inventory at December 31, 2025, was on a lower-of-LIFO-cost-or-market basis.

6. On February 1, 2026, the board of directors adopted a resolution accepting the offer of an investment banker to guarantee the marketing of $1,200,000 of preferred stock.

Instructions

State in each case how the 2025 financial statements would be affected, if at all.

Instructions 

Determine for 2026 which of the above segments must be reported separately and which can be combined under the category “Other.” Then, write a one-page memo to the company’s accountant, Anthony Reese, explaining the following.

a. What segments must be reported separately and what segments can be combined.

b. What criteria you used to determine reportable segments.

c. What major items for each must be disclosed.

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Note 7: Major Segments of Business WCI conducts funeral service and cemetery operations in the United States and Canada. Substantially all revenues of WCI's major segments of business are from unaffiliated customers. Segment information for: fiscal 2026, 2025, and 2024 follows. (thousands) Funeral Floral Cemetery Real Estate Dried Whey Limousine Consolidated Revenues 2026 $302,000 $10,000 $ 73,000 2025 245,000 6,000 61,000 2024 208,000 3,000 42,000 Operating Income 2026 74,000 1,500 64,000 2025 200 2024 54,000 150 Capital Expenditures 2026 26,000 1,000 2025 28,000 2,000 2024 14,000 25 Depreciation and Amortization 2026 13,000 100 2025 10,000 50 2024 8,000 25 18,000 12,000 6,000 9,000 60,000 8,000 2,400 1,400 1,000 $ 2,000 4,000 3,000 (36,000) (28,000) (21,000) 400 1,500 600 1,400 700 600 $7,000 4,000 1,000 500 200 100 300 100 25 100 50 25 $12,000 4,000 3,000 2,000 400 350 1,000 700 50 200 100 50 $406,000 324,000 260,000 60,000 48,800 39,600 37,700 92,300 22,700 17,200 12,300 9,700