Eastern Aviation operated both an airline and severalrestaurants located near airports. During the year just ended, allrestaurant operations were discontinued and the following operatingresults were reported.
| | | |
| Continuing operations(airline): | | | |
| Net sales | $ | 27,560,000 | |
| Costs and expenses | | 21,660,000 | |
| Otherdata: | | | |
| Operating income fromrestaurants (net of income tax) | | 432,000 | |
| Gain on sale of restaurants (netof income tax) | | 2,478,000 | |
| Nonrecurring loss | | 1,200,000 | |
|
All of these amounts are before income taxes unless indicatedotherwise. The company's income tax rate is 40 percent. Thenonrecurring loss resulted from damage to a warehouse that is notrelated to the discontinued restaurant operations. Eastern Aviationhad 1,000,000 shares of capital stock outstanding throughout theyear.
Required:
a. Prepare a condensed income statement,including proper presentation of the discontinued restaurantoperations and the nonrecurring loss. Include all appropriateearnings per share figures.
b. Assume that you expect the profitability ofEastern Aviation operations to decline by 5 percent next year, andthe profitability of the restaurants to decline by 10 percent. Whatis your estimate of the company’s net earnings per share nextyear?
