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Income Statement and Earnings Management

1. If a Company had Pretax Earnings from Continuing Operations of $150,000, a Loss from Discontinued Operations of ($30,000) and an Extraordinary gain from an Earthquake of $20,000 and a weighted average number of Common Shares Outstanding (no Preferred Stock) of 100,000 shs, how would the EPS (Earnings per sh) Statistics be presented on the Income Statement? The Company's Tax rate is 30%.

2. Does Earnings Management fit with GAAP?

Solution Preview

Based on the information given, the income statement of the company is as follows:

Income from continuing operations before income tax $150,000
Less income tax ($150,000 * 30%) 45,000
Income from continuing operation (150,000 - 45,000) 105,000
Loss from Discontinued Operation ($30,000)
Less applicable income tax ($30,000 * ...

Solution Summary

This solution contains the income statement for the company in journalizing the transactions and explains if the earnings management fit with GAAP.