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Chapter 4: Question 26Q (page 180)

Qualls Corporation reported 2017 earnings per share of \(7.21. In 2018, Qualls reported earnings per share as follows.

On income from continuing operations \)6.40

On discontinued operations \(1.88

On net income \)8.28

Is the increase in earnings per share from \(7.21 to \)8.28 a favorable trend?

Short Answer

Expert verified

No, the increased earnings per share is not a favorable trend in the case of Qualls Corporation.

Step by step solution

01

Meaning of Business Operations

The term business operation refers to the group of activities that a business entity performs during a year. The operations of a business are bifurcated into two major categories- continued and discontinued operations.

02

Trend of computing earnings per share

According to the given scenario, the trend of computing earnings per share is not favorable because discontinued operations鈥檈arnings per share are not included in the EPS computation.

It may lead to manipulations in the financial statements as earnings per share would present increased amounts.

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Most popular questions from this chapter

Explain the transaction approach to measuring income. Why is the transaction approach to income measurement preferable to other ways of measuring income?

How can earnings management affect the quality of earnings?

Presented below are changes in all the account balances of Fritz Mayhew Furniture Co. during the current year, except for retained earnings.

Increase Increase

(Decrease) (Decrease)

Cash \(79,000 Accounts Payable

Accounts Receivable (net) \)45,000 Bonds Payable \(82,000

Inventory \)127,000 Common Stock \(125,000

Investments (47,000) Paid-In Capital in Excess of Par \)13,000

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Compute the net income for the current year, assuming that there were no entries in the Retained Earnings account except for net income and a dividend declaration of $19,000 which was paid in the current year.

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.)

Identify at least two situations in which important changes in value are not reported in the income statement.
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