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Chapter 4: Q10E (page 184)

Question: (Earnings per Share) The stockholders鈥� equity section of Hendly Corporation appears below as of December 31, 2017.

8% preferred stock, \(50 par value, authorized

100,000 shares, outstanding 90,000 shares \)4,500,000

Common stock, \(1.00 par, authorized and issued 10 million shares 10,000,000

Additional paid-in capital 20,500,000

Retained earnings \)134,000,000

Net income 33,000,000167,000,000

\(202,000,000

Net income for 2017 reflects a total effective tax rate of 34%. Included in the net income figure is a loss of \)18,000,000 (before tax) as a result of a non-recurring major casualty. Preferred stock dividends of \(360,000 were declared and paid in 2017. Dividends of \)1,000,000 were declared and paid to common stockholders in 2017.

Instructions

Compute earnings per share data as it should appear on the income statement of Hendly Corporation.

Short Answer

Expert verified

The earnings per share of the company is $3.26.

Step by step solution

01

Step 1:Meaning of Earnings Per Share

The earnings per share denote the monetary per-share earnings on the outstanding common stock of a company. It is obtained by dividing the net income by the outstanding number of shares.

02

Computation of earnings per share

Computation of Earnings per share

Net Income after tax

$33,000,000

Net income before tax (33,000,000/66%)

50,000,000

Add: Major Casualty Loss

18,000,000

Income from operations

68,000,000

Income Tax (68,000,000X34%)

23,120,000

Income before extraordinary item

44,880,000

Extraordinary item:


Casualty Loss

$18,000,000

Less: Applicable income tax reduction

6,120,000

Net income

$33,000,000

Less: Provision for preferred dividends

360,000

Income available for common shareholders

$32,640,000

Common Shares

10,000,000

Earnings per share (32,640,000/10,000,000)

$3.26

03

Presenting Earnings per share on the Income Statement of Hendly Corporation


Income Statement presentation per share of common stock

Income before extraordinary item

$4.45

Extraordinary item

(1.19)

Net income

$3.26

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Most popular questions from this chapter

Presented below is information related to Viel Company at December 31, 2017, the end of its first year of operations.

Sales revenue \(310,000

Cost of goods sold \)140,000

Selling and administrative expenses \(50,000

Gain on sale of plant assets \)30,000

Unrealized gain on available-for-sale investments \(10,000

Interest expense \)6,000

Loss on discontinued operations \(12,000

Dividends declared and paid \)5,000

Instructions

Compute the following: (a) income from operations, (b) net income, (c) comprehensive income, and (d) retained earnings balance at December 31, 2017. (Ignore income tax effects.)

(Multiple-Step Statement with Retained Earnings Statement) Presented below is information related to Ivan Calderon Corp. for the year 2017.

Net sales $1,300,000 Write-off of inventory due to obsolescence 80,000

Cost of goods sold 780,000 Depreciation expense omitted by accident in 2016 55,000

Selling expenses 65,000 Casualty loss 50,000

Administrative expenses 48,000 Cash dividends declared 45,000

Dividend revenue 20,000 Retained earnings at December 31, 2016 980,000

Interest Revenue 7,000

Effective tax rate of 34% on all items

Instructions

  1. Prepare a multiple-step income statement for 2017. Assume that 60,000 shares of common stock are outstanding for the entire year.
  2. Prepare a separate retained earnings statement for 2017.

During 2017, Liselotte Company reported income of \(1,500,000 before income taxes and realized a gain of \)450,000 on the disposal of assets related to a discontinued operation. The criteria for classification as a discontinued operation is appropriate for this sale. The income is subject to income taxation at the rate of 34%. The gain on the sale of the plant is taxed at 30%. Indicate an appropriate presentation of these items in the income statement.

(Multiple-Step and Single-Step Statements) The accountant of Latifa Shoe Co. has piled the following information from the company鈥檚 records as a basis for an income statement for the year ended December 31, 2017.

Rent revenue \(29,000

Interest expense 18,000

Market appreciation on land above cost 31,000

Salaries and wages expense (selling) 114,800

Supplies (selling) 17,600

Income tax 37,400

Salaries and wages expense (administrative) \)135,900

Other administrative expenses 51,700

Cost of goods sold 496,000

Net sales 980,000

Depreciation on plant assets (70% selling, 30% administrative) 65,000

Cash dividends declared 16,000

There were 20,000 shares of common stock outstanding during the year.

Instructions

  1. Prepare a multiple-step income statement.
  2. Prepare a single-step income statement.
  3. (c) Which format do you prefer? Discuss.

The following information was taken from the records of Roland Carlson Inc. for the year 2017: income tax applicable to income from continuing operations \(187,000, income tax applicable to loss on discontinued operations \)25,500, and unrealized holding gain on available-for-sale securities (net of tax) \(15,000.

Gain on sale of equipment \)95,000 Cash dividends declared $150,000

Loss on discontinued operations75,000 Retained earnings January1,2017 600,000

Administrative expenses 240,000 Cost of goods sold 850,000

Rent revenue 40,000 Selling expenses 300,000

Loss on write-down of inventory 60,000 Sales revenue 1,900,000

Shares outstanding during 2017 were 100,000.

Instructions

  1. Prepare a single-step income statement.
  2. Prepare a comprehensive income statement for 2017 using the two statement format.
  3. Prepare a retained earnings statement for 2017.
See all solutions

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