Question

Pacific Airlines operated both an airline and several rental car operations located near airports.
During the year just ended, all rental car operations were discontinued and the following operating results were reported:
Continuing operations (airline):
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $61,440,000
Costs and expenses (including income taxes on continuing operations) . . . . 53,980,000
Other data:
Operating income from car rentals (net of income tax) . . . . . . . . . . . . . . . . . . 670,000
Gain on sale of rental car business (net of income tax) . . . . . . . . . . . . . . . . . 4,330,000
Extraordinary loss (net of income tax benefit) . . . . . . . . . . . . . . . . . . . . . . . . 3,120,000
The extraordinary loss resulted from the destruction of an airliner by terrorists. Pacific Airlines had 4,000,000 shares of capital stock outstanding throughout the year.
Instructions
a. Prepare a condensed income statement, including proper presentation of the discontinued rental car operations and the extraordinary loss. Include all appropriate earnings per share figures.
b. Assume that you expect the profitability of Pacific’s airline operations to decline by 10 percent next year and the profitability of the rental car operation to decline by 10 percent. What is your estimate of the company’s net earnings per share next year?



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  • CreatedApril 17, 2014
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