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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’earnings 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

Question: Which of the following is not an acceptable way of displaying the components of other comprehensive income under IFRS?

(a) Within the statement of retained earnings.

(b) Second income statement.

(c) Combined statement of comprehensive income.

(d) All of these choices are acceptable.

Indicate the section of a multiple-step income statement in which each of the following is shown.

(a) Loss on inventory write-down.

(b) Loss from strike.

(c) Bad debt expense.

(d) Loss on disposal of a discontinued operation.

(e) Gain on sale of machinery.

(f) Interest revenue.

(g) Depreciation expense.

(h) Material write-offs of notes receivable.

Perlman Land Development, Inc. purchased land for \(70,000 and spent \)30,000 developing it. It then sold the land for \(160,000. Sheehan Manufacturing purchased land for a future plant site for \)100,000. Due to a change in plans, Sheehan later sold the land for \(160,000. Should these two companies report the land sales, both at gains of \)60,000, in a similar manner?

Stacy Corporation had income from operations of \(7,200,000. In addition, it suffered an unusual and infrequent pretax loss of \)770,000 from a volcano eruption, interest revenue of \(17,000, and a write-down on buildings of \)53,000. The corporation's tax rate is 30%. Prepare a partial income statement for Stacy beginning with income from operations. The corporation had 5,000,000 shares of common stock outstanding during 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.
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