2 divided by diluted net earnings per

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: (175,000) 1,548,750 The balance in the Income Tax Liability account would equal the beginning balance plus the entire amount owed to the government for income taxes as of December 31, 2012 less tax payments made during 2012. MTM has two sources of income taxes during 2012. The first source is the income tax on income from continuing operations in the amount of $297,500 [from part (a)]. The second source is the income tax benefit on the extraordinary loss in the amount of $47,250 [from part (a)]. Therefore, MTM owes the beginning balance of $70,000 plus the total of the two sources of 2012 taxes of $250,250 less the 2012 tax payments of $200,000. Therefore, the tax liability balances of December 31, 2012 equals $120,250. P13–7 a. This allows the user of the financial statements to try and make estimates of the future potential results of the company. Discontinued operations will not impact future revenues and expenses so this gives more information to the user. Continuing operations gives users of the financial statements the best information for estimating the company’s future performance. b. An estimate of the number of shares outstanding is calculated by taking net earnings ($3,544.2) and dividing it by the basic net earnings per share ($2.87) or 1,235 million shares. c. The distinction between basic net earnings per share and diluted net earnings per share is that basic is calculated using the weighted average number of shares outstanding and diluted is calculated using the outstanding weighted average number of shares plus the number of shares that would be outstanding if all convertible instruments were converted to common shares. The most common financial instruments that are convertible to common shares are stock options, preferred stock and some bonds. d. An estimate of the number of shares that would be outstanding if all other instruments were converted to common shares is calculated by taking net earnings ($3,544.2) divided by diluted net earnings per share ($2.83) or 1,252 million shares. P13–8 a. The readers of the financial statements are interested in what operations and profitability are likely to continue into the following year. Line items such as discontinued operations and extraordinary events will not occur in the following year and thus should be separated from continuing operations that will be likely to recur in the upcoming year. b. Earnings were $1,362 million and earnings per share were $1.08, therefore the number of shares would be $1,362/$1.08 = 1,261.111 million. P13–8 Concluded c. Earnings per share represents the net income that can be attached to each share that is currently outstanding. If, however, additional shares become outstanding (due to, for example, the conversion of preferred shares into common shares), then the net income needs to be spread among a larger number of shares. Diluted EPS shows the net income spread among the total number of shares that could be outstanding. d. Earnings were $1,362 mill...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online