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ACC 331 Lecture Notes - Lecture 12: Net Income, Income Statement, Earnings Before Interest And Taxes

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School
Elon University
Department
Accounting
Course
ACC 331
Professor
Linda Poulson

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Document Summary

The ability of a user to predict a company"s future earnings. The meaning of the word quality is how good something is the standard or the caliber. Organizes the numbers on an income statement di erently to provide certain subtotals. The more debt a company has the more they are tied down to paying back expenses. You do not want a large number as a loss on inventory. A separate line item means that it is material. You have to record the expense little by little. Ex: for the store you close this year, or the employees you lay o this year. Income from discontinued operations is reported directly below income from continuing operations net of tax. If a component of the business quali es for discontinued operations treatment . The tax expense e ect is removed from continuing operations. All related revenues, expenses, gains, and losses must be removed from continuing operations.

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Related Questions

Income Statement Sections
During the current year, Dale Corporation incurred an extraordinarytornado loss of $330,000 and sold a segment of its business at again of $199,000. Until it was sold, the segment had a currentperiod operating loss of $78,000. Also, the company discovered thatan error caused last year's ending inventory to be understated by$34,000 (a material amount). The company had $830,000 income fromcontinuing operations for the current year. Prepare the lower partof the income statement, beginning with the $830,000 income fromcontinuing operations. Follow tax allocation procedures, assumingthat all changes in income are subject to a 40 percent income taxrate. Disregard earnings per share disclosures.

Income from Continuing Operations $Answer
Discontinued Operations
Loss from operations of discontinued segment $Answer
Gain on disposal of discontinued segment Answer Answer
Income before Extraodinary Item Answer
Extraordinary Item
Tornado Loss Answer
Net Income $AnswerIncorrect
0.00 points out of 1.00

Eastern Aviation operated both an airline and severalrestaurants located near airports. During the year just ended, allrestaurant operations were discontinued and the following operatingresults were reported.

Continuing operations(airline):
Net sales $ 27,560,000
Costs and expenses 21,660,000
Otherdata:
Operating income fromrestaurants (net of income tax) 432,000
Gain on sale of restaurants (netof income tax) 2,478,000
Nonrecurring loss 1,200,000

All of these amounts are before income taxes unless indicatedotherwise. The company's income tax rate is 40 percent. Thenonrecurring loss resulted from damage to a warehouse that is notrelated to the discontinued restaurant operations. Eastern Aviationhad 1,000,000 shares of capital stock outstanding throughout theyear.

Required:

a. Prepare a condensed income statement,including proper presentation of the discontinued restaurantoperations and the nonrecurring loss. Include all appropriateearnings per share figures.

b. Assume that you expect the profitability ofEastern Aviation operations to decline by 5 percent next year, andthe profitability of the restaurants to decline by 10 percent. Whatis your estimate of the company’s net earnings per share nextyear?

Eastern Aviation operated both an airline and severalrestaurants located near airports. During the year just ended, allrestaurant operations were discontinued and the following operatingresults were reported.

Continuing operations(airline):
Net sales $ 27,560,000
Costs and expenses 21,660,000
Otherdata:
Operating income fromrestaurants (net of income tax) 432,000
Gain on sale of restaurants (netof income tax) 2,478,000
Nonrecurring loss 1,200,000

All of these amounts are before income taxes unless indicatedotherwise. The company's income tax rate is 40 percent. Thenonrecurring loss resulted from damage to a warehouse that is notrelated to the discontinued restaurant operations. Eastern Aviationhad 1,000,000 shares of capital stock outstanding throughout theyear.

Required:

a. Prepare a condensed income statement,including proper presentation of the discontinued restaurantoperations and the nonrecurring loss. Include all appropriateearnings per share figures.

b. Assume that you expect the profitability ofEastern Aviation operations to decline by 5 percent next year, andthe profitability of the restaurants to decline by 10 percent. Whatis your estimate of the company’s net earnings per share nextyear?