Atlantic Airlines operated both an airline and several motels located near airports. During the year just ended, all motel operations were discontinued and the following operating results were reported:
- Continuing operations (airline):
- Net sales $56,000,000
- Costs and expenses (including income taxes on continuing operations) 40,200,000
- Other data:
- Operating income from motels (net of income tax) 790,000
- Gain on sale of motels (net of income tax) 4,956,000
- Extraordinary loss (net of income tax benefit) 3,360,000
The extraordinary loss resulted from the destruction of an airliner by an earthquake. Atlantic Airlines had 1,000,000 shares of capital stock outstanding throughout the year.
Instructions
a.Prepare a condensed income statement, including proper presentation of the discontinued motel operations and the extraordinary loss. Include all appropriate earnings per share figures.
b.Assume that you expect the profitability of Atlantic Airlines operations to decline by 5 percent next year, and the profitability of the motels to decline by 10 percent. What is your estimate of the company's net earnings per share next year?
a. ATLANTIC AIRLINES
Income Statement
For the Year Ended December 31, 20
Earnings per share of common stock:
Earnings from continuing operations $
Income from discontinued operations
Earnings before extraordinary items $
Extraordinary loss (3.36)
Net earnings $
b. Estimated net earnings per share next year:
Earnings per share from continuing operations $
Estimated decrease ( )
Estimated net earnings per share next year $