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 $ 57,000,000 Costs and expenses 40,200,000 Other data: Operating income from restaurants (net of income tax) 750,000 Gain on sale of restaurants (net of income tax) 4,956,000 Nonrecurring loss 3,360,000 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. Required: 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. What is your estimate of the company’s net earnings per share next year?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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	$	57,000,000
Costs and expenses		40,200,000
Other data:
Operating income from restaurants (net of income tax)		750,000
Gain on sale of restaurants (net of income tax)		4,956,000
Nonrecurring loss		3,360,000

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.

Required:

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. What is your estimate of the company’s net earnings per share next year?

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