Question

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.

Short answer

The earnings per share of Stacy Corporation is $0.90.

Step-by-step solution

Meaning of Pretax earnings

Pretax earnings mean the amount of income before deducting any income taxes from it.

Preparation of Partial Income Statement

Particulars	Amount ($)
Income from operations	$7,200,000
Other Revenues and Gains
Interest Revenue	$17,000
Other Expenses and Losses
Loss due to Volcano Eruption	($770,000)
Impairment Loss-Building	($53,000)
Income before taxes	$6,394,000
Income Tax @30%	$1,918,200
Net Income	$4,475,800
Earnings per Share	$0.90

Working Note:

1. Calculation of Earnings per share

$\begin{array}{rcl}\mathrm{Earning}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Outstanding}\mathrm{common}\mathrm{stock}}\\ & =& \frac{\$4,475,800}{5,000,000\mathrm{Shares}}\\ & =& \$0.90\end{array}$