Gulf Coast 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 (airlines): Net sales...................................................................................................... $ 51,120,000 Costs and expenses (including Income taxes on continuing operations)... 43,320,000 Other data: Operating Income from motels (net of Income taxes)……………………………… 864,000 Gain or sale of motels (net of
Gulf Coast 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 (airlines):
Net sales...................................................................................................... $ 51,120,000
Costs and expenses (including Income taxes on continuing operations)... 43,320,000
Other data:
Operating Income from motels (net of Income taxes)……………………………… 864,000
Gain or sale of motels (net of income taxes)……………………………………………... 4,956,000
Extraordinary loss (net of Income tax benefit)……………………………………………. 3,360,000
The extraordinary loss resulted from the destruction of an airliner by terrorists.
Gulf Coast Airlines had 1,200,000 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 Gulf Coast's airlines operations to decline by 5% next
year, and the profitability of the motels to decline by 10%.
What is your estimate of the company's net earrings per share next year?
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