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Chapter 4: Question 26Q (page 180)

Qualls Corporation reported 2017 earnings per share of \(7.21. In 2018, Qualls reported earnings per share as follows.

On income from continuing operations \)6.40

On discontinued operations \(1.88

On net income \)8.28

Is the increase in earnings per share from \(7.21 to \)8.28 a favorable trend?

Short Answer

Expert verified

No, the increased earnings per share is not a favorable trend in the case of Qualls Corporation.

Step by step solution

01

Meaning of Business Operations

The term business operation refers to the group of activities that a business entity performs during a year. The operations of a business are bifurcated into two major categories- continued and discontinued operations.

02

Trend of computing earnings per share

According to the given scenario, the trend of computing earnings per share is not favorable because discontinued operations’earnings per share are not included in the EPS computation.

It may lead to manipulations in the financial statements as earnings per share would present increased amounts.

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Most popular questions from this chapter

Linus Paper Company decided to close two small pulp mills in Conway, New Hampshire, and Corvallis, Oregon. These two closings do not represent a major shift in strategy for the company. Would these closings be reported in a separate section entitled “Discontinued operations after income from continuing operations”? Discuss.

(Multiple-Step Statement with Retained Earnings Statement) Presented below is information related to Ivan Calderon Corp. for the year 2017.

Net sales $1,300,000 Write-off of inventory due to obsolescence 80,000

Cost of goods sold 780,000 Depreciation expense omitted by accident in 2016 55,000

Selling expenses 65,000 Casualty loss 50,000

Administrative expenses 48,000 Cash dividends declared 45,000

Dividend revenue 20,000 Retained earnings at December 31, 2016 980,000

Interest Revenue 7,000

Effective tax rate of 34% on all items

Instructions

  1. Prepare a multiple-step income statement for 2017. Assume that 60,000 shares of common stock are outstanding for the entire year.
  2. Prepare a separate retained earnings statement for 2017.

Question: What is meant by the terms elements and items as they relate to the income statement? Why might items have to be disclosed in the income statement?

Explain the transaction approach to measuring income. Why is the transaction approach to income measurement preferable to other ways of measuring income?

Cooper Investments reported an unusual gain from the sale of certain assets in its 2017 income statement. How does intra period tax allocation affect the reporting of this unusual gain?
See all solutions

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