Question 5BE - Intermediate Accounting (Kieso)

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.

Step-by-Step Solution

Answer

The earnings per share of Stacy Corporation is $0.90.

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

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