Question 11: An Entity That Reports A Discontinued Operation

Question 11an Entity That Reports A Discontinued Operation Or An Extr

Question . An entity that reports a discontinued operation or an extraordinary item shall present basic and diluted earnings per share amounts for those line items Answer either on the face of the income statement or in the notes to the financial statements. only in the notes to the financial statements. only on the face of the income statement. only if management chooses to do so as these amounts are not required to be disclosed either in the financial statements or the notes thereto. 2 points Question . At December 31, 2014 and 2013, Rollins Corp. had 200,000 shares of common stock and 20,000 shares of 5 percent, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2013 or 2014.

Net income for 2014 was $1,000,000. For 2014, basic earnings per common share amounted to Answer $5.00. $4.75. $4.50. $4.00. 2 points Question . At December 31, 2014, the Carboneer Company had 150,000 shares of common stock issued and outstanding. On April 1, 2015, an additional 30,000 shares of common stock were issued.

Carboneer's net income for the year ended December 31, 2015, was $517,500. During 2015, Carboneer declared and paid $300,000 in cash dividends on its nonconvertible preferred stock. The basic earnings per common share, rounded to the nearest penny, for the year ended December 31, 2015, should be Answer $3.00. $2.00. $1.45. $1.26. 2 points Question . Basic earnings per share represents the amount of earnings attributable to Answer all common stock and dilutive securities. common stock, preferred stock, and all dilutive securities. each share of common stock, and options or warrants which convert to common stock. each share of common stock outstanding, and any non-conditional conversions and exercises.

2 points Question . Earnings per share disclosures are required only for Answer companies with complex capital structures. companies that change their capital structures during the reporting period. public companies. private companies. 2 points Question . Earnings per share information should be reported for all of the following except Answer continuing operations. extraordinary gain. net income. cash flows from operating activities. 2 points Question .

For purposes of computing the weighted-average number of shares outstanding during the year, a midyear event that must be treated as occurring at the beginning of the year is the Answer declaration and issuance of a stock dividend. purchase of treasury stock. sale of additional common stock. issuance of stock warrants. 2 points Question . Leshner Corporation began business on January 1, 2014. Due to difficulties in beginning operations, the company issued 50 shares of common stock (par $10) on January 1, 2014, to the organizers. Twenty additional shares were also sold on that date.

The following also occurred during the year 2014: February -for-1 stock split April percent stock dividend August -for-1 stock split December -for-2 reverse stock split The weighted average number of shares outstanding for 2014 was Answer 77 shares. 175 shares. 350 shares. 385 shares. 2 points Question .

The main purpose of reporting diluted earnings per share is to Answer provide a comparison figure for debt holders. indicate earnings shareholders will receive in future periods. distinguish between companies with a complex capital structure and companies with a simple capital structure. show the maximum possible dilution of earnings. 2 points Question . Under current GAAP, a company with a complex capital structure and potential earnings per share dilution must present Answer basic and diluted earnings per share. primary and fully diluted earnings per share. basic and primary earnings per share. basic earnings per share and cash flow per share. Quarterly Sales Summary Ice Creamery Sales 2016 Analysis Projected Sales Growth 35% Product Q1 Q2 Q3 Q4 Total 2016 Projected 2017 Sales Ice cream bars - chocolate $ 236,200 $ 307,060 $ 347,214 $ 229,114 $ 1,119,588 Ice cream bars - vanilla 522,,,,631 $ 2,475,702 Ice cream cups - chocolate 487,,,,584 $ 2,309,328 Ice cream cups - vanilla 625,,,,332 $ 2,963,034 Ice cream cups - strawberry 152,,,,022 $ 654,746 Ice cream sandwiches 337,,,,542 $ 1,339,245 Ice cream cones 121,,,,564 $ 574,488 Bonuses Ice Creamery Sales Bonus Summary First Name Last Name City State Q1 Q2 Q3 Q4 Total Sales Bonus?

Trey Beiter Pratt CT $18,807 $24,449 $25,818 $17,556 $86,630 Sydney Brenton Pratt CT $18,748 $24,372 $25,737 $17,501 $86,359 Samuel Cordell Pratt CT $18,689 $24,296 $25,656 $17,446 $86,087 Lori Kackowski Pine Valley NJ $18,935 $24,615 $25,994 $17,676 $87,219 Lisa Kaldahl Pine Valley NJ $18,787 $24,423 $25,790 $17,537 $86,537 Lisa Kennedy Pine Valley NJ $18,638 $24,230 $25,587 $17,399 $85,854 Ted Boberg Hamton NY $26,636 $34,627 $36,566 $24,865 $122,694 Ryan Day Hamton NY $25,203 $32,600 $34,930 $23,752 $116,486 Morgan Ford Hamton NY $21,416 $27,841 $29,400 $19,992 $98,649 Emma Replogle Hamton NY $20,076 $26,099 $27,560 $18,741 $92,476 Summary Statistics Number of Salespeople – NY Number of Salespeople – NJ Number of Salespeople – CT Maximum Total Sales Minimum Total Sales Average Total Sales Sales Projections Ice Creamery Sales Sales Projections Projected Sales Growth 30% Product Total 2016 Projected 2017 Sales Ice cream bars - chocolate $ 1,119,588 $ 1,455,464 Product total $ 11,436,131 $ 14,866,970 Product 12% 20% 25% 30% 35% Ice cream bars - chocolate Ice cream bars - vanilla Ice cream cups - chocolate Ice cream cups - vanilla Ice cream cups - strawberry Ice cream sandwiches Ice cream cones Total $ 11,436,131 $ 14,866,970

Paper For Above instruction

Accounting for Discontinued Operations and Extraordinary Items is a critical aspect of financial reporting as mandated by Generally Accepted Accounting Principles (GAAP). When an entity reports a discontinued operation or an extraordinary item, specific reporting requirements are in place to ensure transparency and comparability of financial statements. Notably, entities are required to present the basic and diluted earnings per share (EPS) for these line items, either on the face of the income statement or within the notes to the financial statements, enhancing clarity for users of the financial reports.

The presentation of earnings per share related to discontinued operations allows stakeholders to understand the separate impact of operational changes on earnings. According to ASC 205-20, the entity must disclose basic and diluted EPS for the discontinued operation. The location of this disclosure depends on the company's reporting practices, but typically, such information is showcased prominently either directly on the income statement or elaborated in the notes, with the goal of providing comprehensive and transparent financial disclosure (FASB, 2021).

Focusing on earnings per share calculations, basic earnings per share is computed as net income attributable to common shareholders divided by the weighted-average number of common shares outstanding during the period (Kimmel, Weygandt, & Kieso, 2019). When a company reports a discontinuation or an extraordinary item, the net income attributable to common shareholders typically excludes income attributable to any preferred shareholders. The presentation of basic EPS related to these items aids investors in assessing the core operating performance excluding unusual or non-recurring events.

Regarding the reporting of EPS, companies with complex capital structures are required to disclose both basic and diluted EPS. Diluted EPS accounts for potential dilution resulting from securities such as stock options and warrants, providing a worst-case perspective on earnings per share. This is especially important when evaluating companies with convertible securities, stock options, or other dilutive instruments (FASB, 2021).

The purpose of diluted EPS is primarily to illustrate the effect of all dilutive securities on earnings per share, thereby showing the maximum possible dilution of earnings applicable to current shareholders. This aids stakeholders in understanding the potential impact of securities that could be converted into common stock, thus providing a more conservative measure of future earnings per share (Kieso, Weygandt, & Warfield, 2019).

Furthermore, earnings per share disclosures are generally mandatory for public companies under SEC regulations. They are not typically required for private companies unless specific circumstances or investor agreements dictate otherwise (SEC, 2022). The calculation of EPS for various components, including net income, continuing operations, and extraordinary gains, must be comprehensively documented, ensuring transparency and comparability across periods and among peer companies.

It is critical to note that EPS related to cash flows from operating activities is not required as per GAAP disclosures. EPS is primarily concerned with net income attributable to shareholders, and the focus remains on profitability metrics rather than cash flow measures (Kimmel et al., 2019).

The weighted-average number of shares outstanding is adjusted by events such as stock dividends, stock splits, or share issuance, with particular attention to midyear events treated as occurring at the beginning of the period. This approach ensures accurate computation of EPS, considering changes in capital structure that affect the number of outstanding shares (FASB, 2021).

Calculations involving stock splits, stock dividends, and reverse splits require careful adjustment of weighted average shares to reflect the effect of these corporate actions. For example, a stock split increases the number of shares, while a reverse split reduces it, and these adjustments directly influence EPS metrics (Kieso et al., 2019).

The primary purpose of reporting diluted EPS is to demonstrate the potential dilution of earnings if all dilutive securities are converted into common stock. This provides stakeholders with a more cautious estimate of EPS, considering all existing securities that could potentially decrease per-share earnings (FASB, 2021).

In companies with complex capital structures and potential earnings dilution, GAAP requires the presentation of both basic and diluted EPS, often in a combined financial statement section. This dual presentation gives investors a comprehensive view of current earnings and potential dilution effects, supporting more informed investment decisions (Kimmel et al., 2019).

Overall, accurate reporting of EPS, especially for discontinued operations and extraordinary items, contributes significantly to transparency in financial reporting. It enables investors and analysts to differentiate between core operating results and anomalies, facilitating better investment analysis and decision-making.

References

• FASB. (2021). Accounting Standards Codification (ASC) 205-20: Discontinued Operations. Financial Accounting Standards Board.
• Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2019). Financial Accounting: Tools for Business Decision Making (8th ed.). Wiley.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting (16th ed.). Wiley.
• SEC. (2022). Regulation S-X and S-K: Financial Reporting Requirements for Public Companies. U.S. Securities and Exchange Commission.