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Unformatted text preview: 000)
4,036,500 $ (52,000)
(520,000) $ Earnings per share:
Income from continuing operations
Disposal of business segment
Net earnings per share
* $97,500 = $ 2.17
$ _ 2.01 [Discontinued segment's sales – Discontinued segment's cost of goods
sold – Discontinued segment's operating expenses (1 – Tax rate of
35%) The objectives of financial accounting are to allow prediction of future cash flows. Earnings
numbers are useful because they reflect changes in a company’s resources. Some measures
such as income from operations reflect amounts expected to persist in the future from the normal
business operations. Other measures, such as income from continuing operations, reflect an
infrequent or unusual item with less persistence. Finally, extraordinary items, disposal gains and
losses, and cumulative effects of accounting method changes have low persistence and are less
useful for prediction of future cash flows. P13–11
a. b. The sale of the credit card division (disposal of a business segment) would be shown on the income
statement after net income from continuing operations; the segment would be separated into two line
items, the income from the discontinued operations up to the date of disposal and the gain from the
disposal (both shown net of tax). The restructuring charges would be shown in “Other revenues and
expenses”, on the income statement after the calculation of net operating income.
Sears’ performance over the twoyear period is better measured when the onetime, nonrecurring items
are removed from the analysis. The profitability of $309 million is not as strong as it appears, because it
includes a gain from the sale of a division (that will not recur in the following year); likewise, the following
year’s profits of $53 million should actually be viewed more positively because the restructuring expense (which is presumably a nonrecurring item) dragged down that year’s bottom line. P13–12
b. Recognized income and expense under IFRS is similar to comprehensive income under U.S. GAAP.
The SORIE would be presented as:
Net profit 1,500
Fair value gains(losses) on availableforsale securities and currency translation gains(losses)
Total recognized income and expense c. (1,266) 234 The statement of shareholders’ equity will show the effects from currency and securities transactions that
affect equity but do not affect profitability. (The balance sheet will also show the end result in the
shareholder equity section.) P13–13
a. Adjusting journal entries (1 ) Inventory (ending) (+A)
Cost of Goods Sold (E, –SE) (–A) 480,000
467,000 Recorded cost of inventory sold.
(2 ) Bad Debt Expense (E, –SE) Accounts (–A) 25,000*
Allowance for Doubtful
25,000 Estimated bad debt expense.
*$25,000 = $75,000 – $50,000 Balance in Allowance for Doubtful Accounts
(3 ) Depreciation Expense (E, –SE) Depreciation (–A) 85,000
85,000 Depreciated fixed assets.
(4 ) Insurance Expense (E, –SE) 20,000
Prepaid Insurance (–A)
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- Fall '08