Question 26Q - Intermediate Accounting (Kieso)

Question

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?

Step-by-Step Solution

Answer

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

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.  

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.