SOLUTIONS TO PROBLEMS SET A PROBLEM 12.

1A ATLANTIC AIRLINES
a.
ATLANTIC AIRLINES Income Statement For the Year Ended December 31, 20__ Net sales Costs and expenses (including income taxes on continuing operations) Income from continuing operations Discontinued operations: Operating income from motels (net of income tax) Gain on sale of motels (net of income tax) Income before extraordinary items Extraordinary loss: destruction of airliner by earthquake (net of income tax benefit) Net income $ 55,120,000 43,320,000 11,800,000

$ $ 864,000 4,956,000 $ $ $

5,820,000 17,620,000 (3,360,000) 14,260,000

Earnings per share of common stock: Earnings from continuing operations ($11,800,000 1,000,000 shares) Income from discontinued operations ($5,820,000 1,000,000 shares) Earnings before extraordinary items ($17,620,000 1,000,000 shares) Extraordinary loss ($3,360,000 1,000,000 shares) Net earnings ($14,260,000 1,000,000 shares)

11.80 5.82

$ $

17.62 (3.36) 14.26

b.

Estimated net earnings per share next year: Earnings per share from continuing operations Estimated decrease ($11.80 x 5%) Estimated net earnings per share next year The profitability of the motels is not relevant, as these motels are no longer are owned by Atlantic Airlines.

$ $

11.80 (0.59) 11.21

PROBLEM 12.2A SLICK SOFTWARE, INC.

a.
SLICK SOFTWARE, INC. Condensed Income Statement For the Year Ended December 31, 2007 Net sales Costs and expenses (including applicable income taxes) Income from continuing operations Discontinued operations: Operating income (net of income tax) Loss on disposal (net of income tax benefit) Income before extraordinary item Extraordinary loss (net of income tax benefit) Net income $ $ $ 140,000 (550,000) $ $ 19,850,000 16,900,000 2,950,000

(410,000) 2,540,000 (900,000) 1,640,000

Earnings per share: Earnings from continuing operations [($2,950,000 - $500,000*) 200,000 shares]
Loss from discontinued operations ($410,000 200,000 shares) Earnings before extraordinary items [($2,540,000 - $500,000 preferred dividends) 200,000 shares

12.25 (2.05) 10.20 (4.50) 5.70

Extraordinary loss ($900,000 200,000 shares) Net earnings [($1,640,000 - $500,000 preferred dividends) 200,000 shares] *Preferred dividends: 80,000 shares x $6.25 =$500,000

PROBLEM 12.2A SLICK SOFTWARE, INC. (concluded)

b.
SLICK SOFTWARE, INC. Statement of Retained Earnings For the Year Ended December 31, 2007 Retained earnings, December 31, 2006 As originally reported Less: prior period adjustment As restated Net income Subtotal Cash dividends Retained earnings, December 31, 2007

$ $ $ $

7,285,000 350,000 6,935,000 1,640,000 8,575,000 (950,000) 7,625,000

c. Total cash dividends declared during 2007 (data given) Less: Preferred stock dividend (80,000 shares x $6.25 per share) Cash dividends to common stockholders Number of common shares outstanding through 2007 Cash dividend per common share ($450,000 200,000 shares)

$ $ $

950,000 500,000 450,000 200,000 2.25

d.

The single 2008 $8.00 figure for EPS is unfavorable in comparison with 2007 performance. Since 2008 has only one EPS figure, it should be compared to the earnings per share from continuing operations in 2007, which amounted to $12.25 per share. Slick Software, Inc.s earnings per share from continuing operations fell $4.25 per share (approximately 35%) from 2007 to 2008.