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Question 5BE

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Intermediate Accounting (Kieso)
Found in: Page 181

Short Answer

Stacy Corporation had income from operations of $7,200,000. In addition, it suffered an unusual and infrequent pretax loss of $770,000 from a volcano eruption, interest revenue of $17,000, and a write-down on buildings of $53,000. The corporation's tax rate is 30%. Prepare a partial income statement for Stacy beginning with income from operations. The corporation had 5,000,000 shares of common stock outstanding during 2017.

The earnings per share of Stacy Corporation is $0.90.

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Step by Step Solution

Meaning of Pretax earnings

Pretax earnings mean the amount of income before deducting any income taxes from it.

Preparation of Partial Income Statement

Particulars

Amount ($)

Income from operations

$7,200,000

Other Revenues and Gains

Interest Revenue

$17,000

Other Expenses and Losses

Loss due to Volcano Eruption

($770,000)

Impairment Loss-Building

($53,000)

Income before taxes

$6,394,000

Income Tax @30%

$1,918,200

Net Income

$4,475,800

Earnings per Share

$0.90

Working Note:

  1. Calculation of Earnings per share

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