Apply Segment Reporting Requirements Practice Test

A public for-profit entity previously reported segments based on product lines (Medical Devices and Diagnostics) because those were the operating segments reviewed by the chief operating decision maker. During the current year, management reorganized and now the chief operating decision maker reviews results and allocates resources by geographic regions (Americas, Europe/Middle East/Africa, and Asia-Pacific), using region-level revenue, operating income, and assets; inter-segment transfers of inventory between regions are tracked. What impact does the management approach have on segment reporting?

A public for-profit entity identifies three operating segments under ASC 280: North America, Europe, and Asia-Pacific. Management asserts Europe and Asia-Pacific should be aggregated into a single reportable segment. Europe has revenue of $420 million, profit of $34 million, and assets of $510 million; Asia-Pacific has revenue of $390 million, profit of $10 million, and assets of $480 million. Both segments sell the same product lines, have similar gross margins, share a centralized supply chain, and have similar long-term average gross margins over the past three years (Europe 28%–30%; Asia-Pacific 27%–29%). Based on the financial data, how should segments be aggregated?