Reporting an Extraordinary Item
For the year ended December 31, Southern Supply had net sales of $3,875,000, costs and other expenses (including income tax) of $3,100,000, and an extraordinary gain (net of income tax) of $210,000.
a. Prepare a condensed income statement (including earnings per share), assuming that 620,000 shares of common stock were outstanding throughout the year. (A condensed income statement is illustrated in Exhibit 12–2 .)
b. Which earnings per share figure is used in computing the price-earnings ratio for Southern Supply reported in financial publications such as The Wall Street Journal? Explain briefly.
EXHIBIT 12–2 Earnings Per Share Presentation
PERRY CORPORATION | |
CONDENSED INCOME STATEMENT | |
FOR THE YEAR ENDED DECEMBER 31, 2015 | |
Net sales | $ 9,115,000 |
Costs and expenses (including tax on continuing operations) | 8,310,000 |
Income from continuing operations | $ 805,000 |
Loss from discontinued operations (net of income tax benefits) | (90,000) |
Income before extraordinary items | $ 715,000 |
Extraordinary loss (net of income tax benefit) | $ (120,000) |
Net income | $ 595,000 |
Earnings per share of common stock: |
|
Earnings from continuing operations | $3.67[a] |
Loss from discontinued operations | (0.45) |
Earnings before extraordinary items | $3.22[b] |
Extraordinary loss | (0.60) |
Net earnings | $2.62[c] |
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