Question

Presented below is financial information of the Carla Vista Corporation for 2020.

Gain on the sale of investments		384,000
Net sales		108,000,000
Cost of goods sold		74,400,000
Loss on disposal of wholesale division		1,608,000
Interest revenue		252,000
Loss on operations of wholesale division		1,656,000
Selling and administrative expenses		19,680,000
Dividends declared on common stock		816,000
Write off of goodwill		1,872,000
Dividends declared on preferred stock		288,000
Effective tax rate on all items is 35%

Carla Vista Corporation decided to discontinue its wholesale operations and to retain their manufacturing operations. On July 1, Carla Vista sold the wholesale operations. During 2020, there were 1,000,000 shares of common stock outstanding all year.

Compute each of the following. (Round earnings per share answer to 2 decimal places, e.g. 5.25 and all other answers to 0 decimal places, e.g. 5,275.)

1.		Income from operations		$
2.		Income before income tax		$
3.		Income from continuing operations		$
4.		Net income		$
5.		Earnings per share		$

Answer 1

1. Income from operations = Net sales - Cost of goods sold - Selling and administrative expenses

=$108,000,000-$74,400,000-$19,680,000

=$13,920,000

2. Income before income tax = Income from operations+ Gain on sale of investment+ Interest Revenue- Write off goodwill

=$13,920,000+$384,000+$252,000-$1,872,000

=$12,684,000

3. Income from continuing operations = Income before income tax- Income tax @35%

=$12,684,000 -($12,684,000×35%)

=$12,684,000-$4,439,400

=$8,244,600

4. Net income = Income from continuing operations -(loss on disposal of wholesale division+ Loss on operations of wholesale division)(1-tax rate)

=$8,244,600-($1,608,000+$1,656,000)(1-35%)

=$8,244,600-($2,121,600)

=$6,123,000

5. Earnings per share =($6,123,000-$288,000)/1,000,000

=$5.835 per share