Reporting Unusual Events; Using Predictive Subtotals
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:
Continuing operations (airline): |
|
Net sales | $27,560,000 |
Costs and expenses (including income taxes on continuing operations) | 21,660,000 |
Other data: |
|
Operating income from restaurants (net of income tax) | 432,000 |
Gain on sale of restaurants (net of income tax) | 2,478,000 |
Extraordinary loss (net of income tax benefit) | 1,680,000 |
The extraordinary loss resulted from the destruction of an airliner by a hurricane. Eastern Aviation had 1,000,000 shares of capital stock outstanding throughout the year.
Instructions
a. Prepare a condensed income statement, including proper presentation of the discontinued restaurant operations and the extraordinary 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?
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