Atlantic Airlines operated both an airline and several motels located near airpo

Question

Atlantic 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 (airline):
Net sales $56,000,000
Costs and expenses (including income taxes on continuing operations) 40,200,000
Other data:
Operating income from motels (net of income tax) 790,000
Gain on sale of motels (net of income tax) 4,956,000
Extraordinary loss (net of income tax benefit) 3,360,000

The extraordinary loss resulted from the destruction of an airliner by an earthquake. Atlantic Airlines had 1,000,000 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 Atlantic Airlines operations to decline by 5 percent next year, and the profitability of the motels to decline by 10 percent. What is your estimate of the company's net earnings per share next year?



a. ATLANTIC AIRLINES
Income Statement
For the Year Ended December 31, 20__


Earnings per share of common stock:
Earnings from continuing operations $ ___________________
Income from discontinued operations _____________________

Earnings before extraordinary items $ _____________________
Extraordinary loss (3.36)

Net earnings $ ________________________

b. Estimated net earnings per share next year:
Earnings per share from continuing operations $ ________________
Estimated decrease ( )

Estimated net earnings per share next year $ _____________________

Explanation / Answer

ATLANTIC AIRLINES

Income Statement

For the Year Ended December 31, 20..

ATLANTIC AIRLINES

Income Statement

For the Year Ended December 31, 20..

a.

ATLANTIC AIRLINES

Income Statement

For the Year Ended December 31, 20..

Air lines Motels Combined Net Sales $56,000,000 Costs & Expences $40,200,000 Income After Tax $15,800,000 $790,000 $16,590,000 Gain on Sale of motels $4,956,000 $4,956,000 Total Income $15,800,000 $5,746,000 $21,546,000 Extrordinary Loss $3,360,000 $3,360,000 Net Income $12,440,000 $5,746,000 $18,186,000 Total Shares 1000000 Earning Per Share $18.19 b.

ATLANTIC AIRLINES

Income Statement

For the Year Ended December 31, 20..

Air lines Motels Combined Current Year Net Income $12,440,000 $5,746,000 $18,186,000 Declining % 5% 10% Declining Amount $622,000 $574,600 $1,196,600 Net Income for Nxt Year $11,818,000 $5,171,400 $16,989,400 Total Shares 1000000 Earning Per Share $16.99 a. Earnings per shareof common stock: Earnings from continuing operations $ $12,440,000 Income from discountinued operations $5,746,000 Earnings before extraordinary items $ $21,546,000 Extraordinary lass(3.36) $3,360,000 Net earnings $ $18,186,000 b. Estimated net earnigs per share next year: Earninings per share from continuing operations $ 12.44 Estimated decrease $5.75 Estimated net earnings per share next year $ $16.99

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