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Chapter 4: Q13E (page 185)

Question: At December 31, 2016, Shiga Naoya Corporation had the following stock outstanding.

10% cumulative preferred stock, \(100 par, 107,500 shares \)10,750,000

Common stock, \(5 par, 4,000,000 shares 20,000,000

During 2017, Shiga Naoya did not issue any additional common stock. The following also occurred during 2017.

Income from continuing operations before taxes \)23,650,000

Discontinued operations (loss before taxes) \(3,225,000

Preferred dividends declared \)1,075,000

Common dividends declared $2,200,000

Effective tax rate 35%

Instructions

Compute earnings per share data as it should appear in the 2017 income statement of Shiga Naoya Corporation. (Round to two decimal places.)

Short Answer

Expert verified

Earnings per share of the company is $3.05.

Step by step solution

01

Meaning of Income Statement

An income statement is one of the components of financial statements prepared annually to determine the profits generated or losses incurred by a business entity during one accounting period.

02

Computation of earnings per share

Shiga Naoya Corporation
Income Statement
For the year ended December 31, 2017

Particulars

Details

Amounts ($)

Net income:



Income from continuing operations before taxes

23,650,000


Less: Income tax @ 35%

(8,277,500)


Income from continuing operation after taxes


15,372,500

Discontinued operations:



Loss before taxes

3,225,000


Less: Income tax @ 35%

1,128,750

(2,096,250)

Net income


13,276,250

Preferred dividends declared


1,075,000

Outstanding common shares


4,000,000

Earnings per share:



Discontinued operations (2,096,250/4,000,000)


(0.52)

Income from continuing operations



($15,372,500-$1,075,000)/4,000,000


3.57

Net income



($13,276,250-$1,075,000)/4,000,000


3.05

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Most popular questions from this chapter

Finley Corporation had income from continuing operations of \(10,600,000 in 2017. During 2017, it disposed of its restaurant division at an after-tax loss of \)189,000. Prior to disposal, the division operated at a loss of $315,000 (net of tax) in 2017 (assume that the disposal of the restaurant division meets the criteria for recognition as a discontinued operation). Finley had 10,000,000 shares of common stock outstanding during 2017. Prepare a partial income statement for Finley beginning with income from continuing operations.

Maher Inc. reported income from continuing operations before taxes during 2017 of \(790,000. Additional transactions occurring in 2017 but not considered in the \)790,000 are as follows.

  1. The corporation experienced an uninsured flood loss in the amount of \(90,000 during the year.
  2. 2. At the beginning of 2015, the corporation purchased a machine for \)54,000 (salvage value of \(9,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2015, 2016, and 2017, but failed to deduct the salvage value in computing the depreciation base.
  3. Sale of securities held as a part of its portfolio resulted in a loss of \)57,000 (pretax).
  4. When its president died, the corporation realized \(150,000 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of \)46,000 (the gain is nontaxable).
  5. The corporation disposed of its recreational division at a loss of \(115,000 before taxes. Assume that this transaction meets the criteria for discontinued operations.
  6. The corporation decided to change its method of inventory pricing from average-cost to the FIFO method. The effect of this change on prior years is to increase 2015 income by \)60,000 and decrease 2016 income by $20,000 before taxes. The FIFO method has been used for 2017. The tax rate on these items is 40%.

Instructions

Prepare an income statement for the year 2017 starting with income from continuing operations before taxes. Compute earnings per share as it should be shown on the face of the income statement. Common shares outstanding for the year are 120,000 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.)

Presented below are certain account balances of Paczki Products Co.

Rent revenue \(6,500 Sales discounts \)7,800

Interest expense \(12,700 Selling expenses \)99,400

Beginning retained earnings \(114,400 Sales revenue \)390,000

Ending retained earnings \(125,000Income tax expense \)31,000

Dividend revenue \(71,000Cost of goods sold \)184,000

Sales returns and allowances \(12,400Administrative expenses \)82,500

Allocation to non controlling interest $17,000

Instructions

From the foregoing, compute the following: (a) total net revenue, (b) net income, (c) dividends declared, and (d) income attributable to controlling stockholders.

Tim Mattke Company began operations in 2015 and for simplicity reasons, adopted weighted-average pricing for inventory. In 2017, in accordance with other companies in its industry, Mattke changed its inventory pricing to FIFO. The pretax income data is reported below.

Year Weighted Average FIFO

2015 \(370,000 \)395,000

2016 390,000 \(430,000

2017 410,000 \)450,000

Instructions

  1. What is Mattke鈥檚 net income in 2017? Assume a 35% tax rate in all years.
  2. Compute the cumulative effect of the change in accounting principle from weighted-average to FIFO inventory pricing.

Show comparative income statements for Tim Mattke Company, beginning with income before income tax, as presented on the 2017 income statement.

Why should caution be exercised in the use of the net income figure derived in an income statement? What are the objectives of generally accepted accounting principles in their application to the income statement?
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