Chapter 4, Problem 4.6P

To determine

Income Statement:

The financial statement which reports revenues and expenses from business operations and the result of those operations is reported as net income or net loss for a particular time period is referred to as income statement.

Multi -step income statement:

A multiple step income statement refers to the income statement that shows the operating, and non-operating activities of the business, under separate head.

Earnings per Share (EPS)

The share or portion of profit earned by each share is called as earnings per share.

$\boxed{\text{Earnings Per Share =}\frac{\text{Net Income}}{\text{Number of Common Shares Outstanding}}}$

To Prepare: A multiple-step income statement for Company R for 2016, along with EPS disclosure.

Answer to Problem 4.6P

Prepare multi-step income statement for Company R for 2016, along with EPS disclosure.

COMPANY  R
Income Statement
For the Year Ended December 31, 2016
Particulars	Amount ($ in thousands)	Amount ($ in thousands)
Sales revenue		18,000
Cost of goods sold		10,500
Gross profit		7,500
Less: Operating expenses:
Selling and administrative	2,500
Restructuring costs	800
		3,300
Operating income		4,200
Other income and expense :
Interest revenue	200
Interest Expenses	(350)
Interest income (expense), net		(150)
Income from continuing operations before     income tax		4,050
Income tax expense		1,215
Income from continuing operations		2,835
Discontinued operations:
Income from operations of discontinued component (a)	400
Income tax expense   (b)	120
Income on discontinued operations		280
Net income		3,115
Earnings per share:
Income from continuing operations  (c)		5.67
Income on discontinued operations  (d)		0.56
Net income		6.23

                                                           Table (1)

Explanation of Solution

Working Notes:

Calculate Income from operations of discontinued component for Company R.

  $\begin{array}{l}\left(\begin{array}{l}\text{Income from operations of }\\ \text{discontinued component}\end{array}\right)=\left(\begin{array}{l}\text{Loss from operation}-\text{Gain}\\ \text{on Disposal}\end{array}\right)\\ \text{ = \$1,600,000}-\$2,000,000\\ \text{ = \$400,000}\\ \end{array}$ (a)

Calculate Income tax expenses for Company R.

$\begin{array}{l}\text{Income Tax Expenses = }\left(\begin{array}{l}\text{Income from operations of discontinued }\\ \text{component }\times \text{ Tax Rate}\end{array}\right)\\ \text{ = \$400 }\times 30\%\\ \text{ = \$120}\\ \end{array}$ (b)

Calculate the EPS for Income from continuing operations.

$\begin{array}{l}\text{Earnings Per Share = }\frac{\text{Income from continuing operation}}{\text{Number of shares outstanding}}\\ \text{ = }\frac{\text{\$2,835,000}}{\$500,000}\\ \text{ = \$5}\text{.67}\end{array}$ (c)

Calculate the EPS for Income on discontinued operations.

$\begin{array}{l}\text{Earnings Per Share = }\frac{\text{Income on discontinuing operations}}{\text{Number of shares outstanding}}\\ \text{ = }\frac{\text{\$280,000}}{\$500,000}\\ \text{ = \$0}\text{.56}\end{array}$ (d)

Conclusion

Hence, under the multi-step statement of Company R for the year ended December 31, 2016, the value of Net income is $3,115 thousands and EPS is $6.23.