The order of items in an income statement. Introduction: Income statement: The income statement shows the financial performance of a business entity. It takes into account all the transactions related to the expenditures as well as revenues for a reporting time period. The outcome for that reporting period is computed by deducting the total expenditures incurred from the revenues earned, and is termed as net profit or loss. Income statement format: Income statement can be prepared in two formats. The choice between single-step income statement and multi-step income statement depends entirely on the structure of the entity. Regardless of the format used, revenues are presented prior to expenditures.

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The shareholders of Barley Corporation have voted in favor of a buyout offer from Wheat Corporation. Information about each firm is given here: Barley Wheat Price/earnings ratio 13.5 21 Shares outstanding 90,000 210,000 Earnings $180,000 $810,000 Barley shareholders will receive one share of Wheat stock for every three shares they hold of Barley. Required What will the EPS of Wheat be after the merger? What will be the P/E ratio if the NPV of the acquisition is 0? What must Wheat feel is the value of the synergy between these two firms? Explain how your answer can be reconciled with the decision to go ahead with the takeover?

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Question

Chapter 2, Problem 5P

Summary Introduction

To explain:The order of items in an income statement.

Introduction:

Income statement:

The income statement shows the financial performance of a business entity. It takes into account all the transactions related to the expenditures as well as revenues for a reporting time period. The outcome for that reporting period is computed by deducting the total expenditures incurred from the revenues earned, and is termed as net profit or loss.

Income statement format:

Income statement can be prepared in two formats. The choice between single-step income statement and multi-step income statement depends entirely on the structure of the entity. Regardless of the format used, revenues are presented prior to expenditures.

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