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Chapter 4: Question 4BE (page 181)

Finley Corporation had income from continuing operations of \(10,600,000 in 2017. During 2017, it disposed of its restaurant division at an after-tax loss of \)189,000. Prior to disposal, the division operated at a loss of $315,000 (net of tax) in 2017 (assume that the disposal of the restaurant division meets the criteria for recognition as a discontinued operation). Finley had 10,000,000 shares of common stock outstanding during 2017. Prepare a partial income statement for Finley beginning with income from continuing operations.

Short Answer

Expert verified

The Earning Per share is $1.0096

Step by step solution

01

Meaning of income from continuing operations

Income from continuing operations is an important element to know the performance of regular business activities. It is reported on the company's income statement.

02

Preparing a partial income statement

Particulars

Amount ($)

Income from continuing operations (A)

$10,600,000

Discontinued Operations

Loss from operation of discontinued restaurant division (net of tax) (B)

$315,000

Loss from disposal of restaurant division (net of tax) (C)

$189,000

Net Income (A-B-C)

$10,096,000

Earnings per share

$1.0096

Working Notes

  1. Calculation of Earnings per share

Earningpershare=NetincomeOutstandingCommonShares=$1,009,60010,000,000Shares=$1.0096

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Most popular questions from this chapter

Indicate where the following items would ordinarily appear on the financial statements of Boleyn, Inc. for the year 2017.

(a) The service life of certain equipment was changed from 8 to 5 years. If a 5-year life had been used previously, additional depreciation of \(425,000 would have been charged.

(b) In 2017, a flood destroyed a warehouse that had a book value of \)1,600,000. Floods are rare in this locality.

(c) In 2017, the company wrote off $1,000,000 of inventory that was considered obsolete.

(d) In 2014, a supply warehouse with an expected useful life of 7 years was erroneously expensed.

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What kinds of questions about future cash flows do investors and creditors attempt to answer with information in the income statement?

Question: Below is the Retained Earnings account for the year 2017 for Acadian Corp.

Retained earnings, January 1, 2017 \(257,600

Add:

Gain on sale of investments (net of tax) \)41,200

Net income 84,500

Refund on litigation with government, related to

the year 2014 (net of tax) 21,600

Recognition of income earned in 2016, but omitted

from income statement in that year (net of tax) 25,400 172,700

430,300

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Loss on discontinued operations (net of tax) 35,000

Write-off of goodwill (net of tax) 60,000

Cumulative effect on income of prior years in changing

from LIFO to FIFO inventory valuation in 2017 (net of tax) 23,200

Cash dividends declared 32,000 150,200

Retained earnings, December 31, 2017 $280,100

Instructions

(b) State where the items that do not appear in the corrected retained earnings statement should be shown

Starr Co. had sales revenue of \(540,000 in 2017. Other items recorded during the year were:

Cost of goods sold \)330,000

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Income tax expense 25,000

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Other operating expenses 10,000

Unrealized gain on value of patents 20,000

Prepare a single-step income statement for Starr for 2017. Starr has 100,000 shares of stock outstanding.

How can earnings management affect the quality of earnings?
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