Jackson Publishing, Inc. (JPI), publishes two newspapers and, until recently, owned a professional baseball team. The baseball team had been losing money for several years and was sold at the end of 2007 to a group of investors who plan to move it to a larger city. Also in 2007, JPI suffered an extraordinary loss when its Raytown printing plant was damaged by a tornado. The damage has since been repaired. A condensed income statement follows:
JACKSON PUBLISHING,INC Income Statement For the Year Ended December 31,2007 | ||
Net revenue |
| $41,000,000 |
Costs and expenses |
| 36,500,000 |
Income from continuing operations |
| $ 4,500,000 |
Discontinued operations: |
|
|
Operating loss on baseball team | $(1,300,000) |
|
Gain on sale of baseball team | ___4,700,000 | ___3,400,000 |
Income before extraordinary items |
| $ 7,900,000 |
Extraordinary loss: |
|
|
Tornado damage to Raytown printing plant |
| ___(600,000) |
Net income |
| ___$ 7,300.000 |
Instructions
On the basis of this information, answer the following questions. Show any necessary computations and explain your reasoning.
a. What would JPI's net income have been for 2007 if it had not sold the baseball team?
b. Assume that for 2008 you expect a 7 percent increase in the profitability of JPI's newspaper business but had projected a $2,000,000 operating loss for the baseball team if JPI had continued to operate the team in 2008. What amount would you forecast as JPI's 2008 net income if the company had continued to own and operate the baseball team?
c. Given your assumptions in part b, but given that JPI did sell the baseball team in 2007, what would you forecast as the company's estimated net income for 2008?
d. Assume that the expenses of operating the baseball team in 2007 amounted to $32,200,000. net of any related income tax effects. What was the team's net revenue for the year?
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