For the year ended December 31 Southern Supply had net sales

For the year ended December 31, Southern Supply had net sales of $17710,000, costs and other expenses (including income taxj of $6.000,000, and a gain from discontinued operations (net of income tax) of $420,000. o feandie a thohoud Inecone statement Üncluding eamings per sharej, nsuming that 910000 shares of common stock were b. Which earnings per share figure would you recommend be used to compute the price-earnings ratio for Southern Supply? Complete this question by entering your answers in the tabs below. Required A Required B Which earnings per share figure would you recommend be used to compute the price earnings ratio for southern Supply? Which earnings is used to compute the price-eamings? Required A

Solution

Answer:

A)

Income statement           

Net sales                         

7,710,000

Less: costs and expenses(inc. tax)           

6,000,000

Income before extraordinary items          

1,710,000

extraordinary gain                                    

420,000

Net income                                                 

2,130,000

Earning per share of common stock

Earning before extraordinary items              
(1,710,000/910,000)

1.88

Extraordinary gain (4,20,000/910,000)       

0.46

Net earnings (1.88+0.46)

2.34

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B)

One should recommend the earning per share before extraordinary item that is 1.88 in this case

Income statement
Net sales	7,710,000
Less: costs and expenses(inc. tax)	6,000,000
Income before extraordinary items	1,710,000
extraordinary gain	420,000
Net income	2,130,000
Earning per share of common stock
Earning before extraordinary items               (1,710,000/910,000)	1.88
Extraordinary gain (4,20,000/910,000)	0.46
Net earnings (1.88+0.46)	2.34