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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

Charlie Brown, the controller for Kelly Corporation, is preparing the company’s income statement at year-end. He notes that the company lost a considerable sum on the sale of some equipment it had decided to replace. Since the company has sold equipment routinely in the past, Brown knows the losses cannot be reported as an unusual item. He also does not want to highlight it as a material loss since he feels that will reflect poorly on him and the company. He reasons that if the company had recorded more depreciation during the assets’ lives, the losses would not be so great. Since depreciation is included among the company’s operating expenses, he wants to report the losses along with the company’s expenses, where he hopes it will not be noticed.

Instructions

  1. What are the ethical issues involved?
  2. What should Brown do?

(Single-Step Statement, Retained Earnings Statement, Periodic Inventory) Presented below is the trial balance of Thompson Corporation on December 31, 2017.

THOMPSON CORPORATION
TRIAL BALANCE

DECEMBER 31, 2017

Debit (\()

Credit (\))

Purchase Discounts

\(10,000

Cash

\)189,700

Accounts receivables

105,000

Rent Revenue

18,000

Retained Earnings

160,000

Salaries and Wages payable

18,000

Sales Revenue

1,100,000

Notes Receivables

110,000

Accounts payable

49,000

Accumulated Depreciation

28,000

Sales discount

14,500

Sales return and allowances

17,500

Notes payable

70,000

Selling expenses

232,000

Administrative expenses

99,000

Common Stock

300,000

Income tax expenses

53,900

Cash Dividends

45,000

Allowance for Doubtful Accounts

5,000

Supplies

14,000

Freight-In

20,000

Land

70,000

Equipment

140,000

Bonds Payable

100,000

Gain on Sale of Land

30,000

Accumulated Depreciation

19,600

Inventory

89,000

Buildings

98,000

Purchases

610,000

Totals

\(1,907,600

\)1,907,600

A physical count of inventory on December 31 resulted in an inventory amount of \(64,000; thus, cost of goods sold for 2017 is \)645,000.

Instructions

Prepare a single-step income statement and a retained earnings statement. Assume that the only changes in retained earnings during the current year were from net income and dividends. Thirty thousand shares of common stock were outstanding the entire year.

How can information based on past transactions be used to predict future cash flows?

Discuss the appropriate treatment in the income statement for the following items:

(a) Loss on discontinued operations.

(b) Non-controlling interest allocation.

(c) Earnings per share.

(d) Gain on sale of equipment.

C.Reither Co. reports the following information for 2017: sales revenue \(700,000, cost of goods sold \)500,000, operating expenses \(80,000, and an unrealized holding loss on available-for-sale securities for 2017 of \)60,000. It declared and paid a cash dividend of \(10,000 in 2017. C Reither Co. has January 1, 2017, balances in common stock \)350,000; accumulated other comprehensive income \(80,000; and retained earnings \)90,000. It issued no stock during 2017.

Instructions

Prepare a statement of stockholders’ equity.

See all solutions

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