Q13E - Intermediate Accounting (Kieso)

Question

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.)

Step-by-Step Solution

Answer

Earnings per share of the company is $3.05.

Step 1: 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. 

Step 2: 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