Question

Eastern Aviation operated both an airline and several restaurants located near airports. During the year just ended, all restaurant operations were discontinued and the following operating results were reported. $ 56,000,000 42,800,000 Continuing operations (airline): Net sales Costs and expenses Other data: Operating income from restaurants (net of income tax) Gain on sale of restaurants (net of income tax) Nonrecurring loss 760,000 4,956,000 3,360,000 All of these amounts are before income taxes unless indicated otherwise. The company's income tax rate is 40 percent. The nonrecurring loss resulted from damage to a warehouse that is not related to the discontinued restaurant operations. Eastern Aviation had 1,000,000 shares of capital stock outstanding throughout the year. Required: a. Prepare a condensed income statement, including proper presentation of the discontinued restaurant operations and the nonrecurring loss. Include all appropriate earnings per share figures. b. Assume that you expect the profitability of Eastern Aviation operations to decline by 5 percent next year, and the profitability of the restaurants to decline by 10 percent. What is your estimate of the company's net earnings per share next year?

Answer 1

Answer: Eastern Aviation Income Statement for the Year ended December 31, Current Year Net Sales $ 5,60,00,000 Cost and Expenses $ 4,28,00,000 Non Recuring Loss $ 33,60,000 Income Before tax $ 98,40,000 Income Tax @ 40% $ 39,36,000 Income From Continuing Operations $ 59,04,000 Discountinued operation: Operating Income from Restarent $ 7,60,000 Gain on sale of Restaurnet $ 49,56,000 $ 57,16,000 Net Income $ 1,16,20,000 Earning Per Share of Common Stock i) Income From Continuing Operations $ 5.90 ($5904000/1000000) ii) Income From discontinuing Operations $ 5.72 ($5716000/1000000) Net Earnings $ 11.62 b) Profitability Decline by 5% Income Before tax Less: 5% ԱԴ ԱԴ ԱԴ ԱԴ ԱԴ ԱԴ Income Tax @ 40% Income From Continuing Operations Income From Continuing Operations 98,40,000 4,92,000 93,48,000 37,39,200 56,08,800 5.61 ($5608800/1000000) Profit of Restaurents decine by 10% 5716000 * 90% =$ 5144400 EPS = $ 5144400/1000000= $ 5.14