Question

For the year ended December 31, Southern Supply had net sales of $7,730,000, costs and other...

For the year ended December 31, Southern Supply had net sales of $7,730,000, costs and other expenses (including income tax) of $5,960,000, and a gain from discontinued operations (net of income tax) of $420,000.


a. Prepare a condensed income statement (including earnings per share), assuming that 910,000 shares of common stock were outstanding throughout the year.

b. Which earnings per share figure would you recommend be used to compute the price-earnings ratio for Southern Supply?

Business   Accounting   
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Answer #1

ANSWER: A

Income statement

Amount

Net sales

7730000

Less: cost and other expenses

5960000

Income before extra-ordinary item

1770000

Less: Gain for discounted operation

420000

Net income

1350000

Earnings per share of common stock

0

EPS before extra-ordinary item (1770000/910000)

1.95

EPS of extra ordinary gain (420000/910000)

0.46

Net earnings per share(1350000/910000)

1.48

ANSWER: B

The $1.95 earnings per share before extraordinary items is the figure used to compute the price-earnings ratio for southern supply. If a company reports an extraordinary gain or loss, the price-earnings ratio is computed using the per-share earnings before the extraordinary item.

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