Safari Equipment Company Has Several Divisions That Are Investment Centers

question 92

Multiple Choice

Safari Equipment Company has several divisions that are investment centers.Data for the Boat Division and the Trailer Division are shown here: $$\begin{array} { | l | r | r | } \hline & \text { Boat Division } & \text { Trailer Division } \\\hline \text { Operating income } & \$ 75,000 & \$ 36,000 \\\hline \text { Total assets at Jan. 1 } & \$ 700,000 & \$ 215,000 \\\hline \text { Total assets at Dec .31 } & \$ 750,000 & \$ 220,000 \\\hline\end{array}$$ Which of the following statements would be the most meaningful interpretation of this data?

• A) The Boat Division's performance is better than that of the Trailer Division because it has higher assets.
• B) The Boat Division uses its assets less efficiently than the Trailer Division does because it has a lower return on investment.
• C) The Boat Division shows a more efficient use of assets than the Trailer Division because it has a higher operating income.
• D) The Boat Division is financially more successful than the Trailer Division because it shows an increase in assets.

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Definitions:

Asset Test

A measure used to evaluate whether an entity has enough liquid assets to cover its short-term liabilities, indicating financial stability.

Reportable Segments

Parts of a business that can be separately identified by the products or services they offer or by their geographical areas, and about which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

Operating Profit

The profit from business operations before deducting interest and taxes, indicative of the core profitability of business activities.

Operating Segments

Components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance.