Brief Exercise 13-4 (Algo) Segment elimination decision LO 13-4
Empire Records divides its operations into three divisions. The company CEO noticed that its North American division is underperforming and is trying to decide if this division should be eliminated. A recent income statement for its North American division is as follows:
Empire Records
North American Division
Income Statement
Revenue $597,000
Division sales commissions (359,000)
Salary of the division president (27,000)
Lease cost for division retail stores (127,000)
Allocation of company-wide legal cost*Footnote asterisk (89,000)
Net loss (5,000)
*Footnote asterisk This cost relates to a legal settlement paid by Empire Records during the year.
Required:
Prepare an income statement containing only the relevant information to the segment elimination decision.
Based on the income statement you prepared in Requirement a, should this division be eliminated?