Answer:
a.
Amount ($)
Net Sales 7,880,000
Less : costs and other expenses (including income tax) 5,900,000
= Income before extraordinary items 1,980,000
Add : Extraordinary Gain [gain from discontinued 420,000
operations (net of income tax)]
= Net Income 2,400,000
Earning Per Shares :
On Income before extraordinary items 2.17
($1,980,000 / 910,000 shares)
On Extraordinary gains ( $420,000 / 910,000 shares) 0.46
On Net Income ($2,400,000 / 910,000 shares) 2.63
b. The earnings per share figure I would recommend to be used to compute the price-earnings ratio for Southern Supply would be On Income before extraordinary items
Explanation:
a. The Condensed income statement for the year ended December 31 would be as follows:
Amount ($)
Net Sales 7,880,000
Less : costs and other expenses (including income tax) 5,900,000
= Income before extraordinary items 1,980,000
Add : Extraordinary Gain [gain from discontinued 420,000
operations (net of income tax)]
= Net Income 2,400,000
Earning Per Shares :
On Income before extraordinary items 2.17
($1,980,000 / 910,000 shares)
On Extraordinary gains ( $420,000 / 910,000 shares) 0.46
On Net Income ($2,400,000 / 910,000 shares) 2.63
b. Given the following calculation of Earning per shares:
Earning Per Shares :
On Income before extraordinary items 2.17
($1,980,000 / 910,000 shares)
On Extraordinary gains ( $420,000 / 910,000 shares) 0.46
On Net Income ($2,400,000 / 910,000 shares) 2.63
The earnings per share figure I would recommend to be used to compute the price-earnings ratio for Southern Supply would be On Income before extraordinary items because calculations of price earning ratio any items of non- recurring nature are to be excluded, so On Income before extraordinary items I recomend.
