acctg 115 - ch 12 solutions
TRANSCRIPT
SOLUTIONS TO PROBLEMS SET APROBLEM 12.1A
ATLANTIC AIRLINESa.
ATLANTIC AIRLINESIncome Statement
For the Year Ended December 31, 20__ Net sales Costs and expenses (including income taxes on continuing operations) Income from continuing operations Discontinued operations:
Operating income from motels (net of income tax) $ 864,000 Gain on sale of motels (net of income tax) 4,956,000
Income before extraordinary items Extraordinary loss: destruction of airliner by earthquake (net of income tax benefit) Net income
Earnings per share of common stock:
1,000,000 shares)
1,000,000 shares)
1,000,000 shares)
b. Estimated net earnings per share next year: Earnings per share from continuing operations Estimated decrease ($11.80 x 5%) Estimated net earnings per share next year
The profitability of the motels is not relevant, as these motels are no longer are owned by Atlantic Airlines.
Earnings from continuing operations ($11,800,000 ¸
Income from discontinued operations ($5,820,000 ¸
Earnings before extraordinary items ($17,620,000 ¸
Extraordinary loss ($3,360,000 ¸ 1,000,000 shares)Net earnings ($14,260,000 ¸ 1,000,000 shares)
SOLUTIONS TO PROBLEMS SET APROBLEM 12.1A
ATLANTIC AIRLINES
ATLANTIC AIRLINESIncome Statement
For the Year Ended December 31, 20__ $ 55,120,000
43,320,000 $ 11,800,000
5,820,000 $ 17,620,000
$ (3,360,000) $ 14,260,000
$ 11.80 5.82 $ 17.62 (3.36) $ 14.26
$ 11.80 (0.59) $ 11.21
PROBLEM 12.2A SLICK SOFTWARE, INC.a.
SLICK SOFTWARE, INC.Condensed Income Statement
For the Year Ended December 31, 2007 Net sales Costs and expenses (including applicable income taxes) Income from continuing operations Discontinued operations:
Operating income (net of income tax) $ 140,000 Loss on disposal (net of income tax benefit) (550,000)
Income before extraordinary item Extraordinary loss (net of income tax benefit) Net income
Earnings per share:Earnings from continuing operations
Earnings before extraordinary items
Net earnings
200,000 shares]
[($2,950,000 - $500,000*) ¸ 200,000 shares]Loss from discontinued operations ($410,000 ¸ 200,000 shares)
[($2,540,000 - $500,000 preferred dividends) ÷ 200,000 shares Extraordinary loss ($900,000 ¸ 200,000 shares)
[($1,640,000 - $500,000 preferred dividends) ¸
*Preferred dividends: 80,000 shares x $6.25 = $500,000
PROBLEM 12.2ASLICK SOFTWARE, INC.
SLICK SOFTWARE, INC.Condensed Income Statement
For the Year Ended December 31, 2007 $ 19,850,000 16,900,000
$ 2,950,000
(410,000) $ 2,540,000 (900,000) $ 1,640,000
$ 12.25 (2.05)
$ 10.20 (4.50) $ 5.70
PROBLEM 12.2A SLICK SOFTWARE, INC. (concluded)b.
SLICK SOFTWARE, INC.Statement of Retained Earnings
For the Year Ended December 31, 2007Retained earnings, December 31, 2006
As originally reportedLess: prior period adjustmentAs restated
Net incomeSubtotal
Cash dividendsRetained earnings, December 31, 2007
c.Total cash dividends declared during 2007 (data given)Less: Preferred stock dividend (80,000 shares x $6.25 per share)Cash dividends to common stockholdersNumber of common shares outstanding through 2007
d.
Cash dividend per common share ($450,000 ÷ 200,000 shares)
The single 2008 $8.00 figure for EPS is unfavorable in comparison with 2007 performance. Since 2008 has only one EPS figure, it should be compared to the earnings per share from continuing operations in 2007, which amounted to $12.25 per share. Slick Software, Inc.’s earnings per share from continuing operations fell $4.25 per share (approximately 35%) from 2007 to 2008.
PROBLEM 12.2ASLICK SOFTWARE, INC. (concluded)
SLICK SOFTWARE, INC.Statement of Retained Earnings
For the Year Ended December 31, 2007
$ 7,285,000 350,000 $ 6,935,000 1,640,000 $ 8,575,000 (950,000) $ 7,625,000 $ 950,000 500,000 $ 450,000 200,000 $ 2.25
in comparison with 2007 performance. Since 2008 has only one earnings per share from continuing operations in 2007, which amounted to
$12.25 per share. Slick Software, Inc.’s earnings per share from continuing operations fell $4.25 per share