Book 1 - Chapter 31

12.

Period	Shares	Months	Weighted Total
Jan. 1–April 30	400,000	4	1,600,000
May 1–Aug. 30	675,000	4	2,740,000
Aug. 31–Nov. 31	575,000	3	1,725,000
Dec. 1–Dec. 31	650,000	1	650,000
Total		12	6,675,000

(6,675,000/12) = 556,250 weighted average shares

13.

The discontinued operations and the gain on the sale of the discontinued operations are shown
together as a special item on the income statement, below income from continuing operations.

Illustration:

Sparks, Inc. Income Statement (partial) For the Year Ended December 31, 20XX
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . .				11,300,000
Discontinued operations
	Loss from mining division operations of
		$1,250,000 less tax savings of $500,000. . . . . . . . . . . . .	($750,000)
	Gain on disposal of mining division operations of
		$200,000 less income tax of $80,000 . . . . . . . . . . . . . . .	120,000	(630,000)
	Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..

Discontinued operations must be shown as a separate item because including them as part of
operating income would be very misleading. Including discontinued operations as part of
operating income would hide the segment of the operations that are discontinued and will not
be a part of future revenues and expenses. Operating income represents recurring businesses
activities that are expected to continue into future periods.

14.

Because of their very unusual and infrequent nature, the probable extraordinary loss items are
tsunami, expropriation, and condemnation.

15.

Net income measures the results of operating and managing a business (except for
extraordinary items). Comprehensive income includes the financial effects of valuation changes
that are often beyond the control of management decisions. For example, when a company is
involved in international transactions, gains and losses on the fluctuations of foreign currency
values do affect the wealth and stockholders’ equity of the business. To generalize, we can say
that net income is more a measure of management performance, whereas comprehensive
income includes net income plus designated assets and liability value changes. Together, they
identify all the effects on stockholders’ equity except for owner investments and distributions.

16.

Designated other comprehensive income items:

Unrealized gains and loss on certain short-term investments

Foreign currency valuation changes

Minimum pension liability adjustments

Results of certain derivative hedging transactions

Learning Goal 31, continued

SOLUTIONS

Section VI · Corporations

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