Problem 12.1A

PROBLEM 12.1A Reporting Unusual Events; Using Predictive Subtotals LO12-3 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 Costs and expenses Other data: Operating income from restaurants (net of income tax) Gain on sale of restaurants (net of income tax) Nonrecurring loss $27,560,000 21,660,000 432,000 2,478,000 1,200,000 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. Instructions 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? Problem 12.1A Similar Worked Problem: Problem 12.1B Part A PROBLEM 12.1A Reporting Unusual Events; Using Predictive Subtotals LO12-3 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 Costs and expenses Other data: Operating income from restaurants (net of income tax) Gain on sale of restaurants (net of income tax) Nonrecurring loss $27,560,000 21,660,000 432,000 2,478,000 1,200,000 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. Instructions 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? Problem 12.1A Similar Worked Problem: Problem 12.1B Part A