Chapter 12 Special Income and Investment Reporting Issues 557The following data were selected from the records of Botanica Greenhouses Inc. for the current
fiscal year ended August 31, 2007:Administrative expenses $ 82,200
Cost of merchandise sold 750,000
Fixed asset impairment 115,000
Gain on condemnation of land 25,000
Income tax:
Applicable to continuing operations 27,200
Applicable to gain on condemnation of land 10,000
Applicable to loss on discontinued operations (reduction) 24,000
Interest expense 15,200
Loss on discontinued operations 60,200
Restructuring charge 40,000
Sales 1,252,500
Selling expenses 182,100Instructions
Prepare a multiple-step income statement, concluding with a section for earnings per share in
the form illustrated in this chapter. There were 10,000 shares of common stock (no preferred)
outstanding throughout the year. Assume that the gain on condemnation of land is an extraor-
dinary item.ILLUSTRATIVE ACCOUNTING APPLICATION PROBLEM
Equity securitiesThe common and preferred stock of a
firm.
Extraordinary itemsEvents and transactions that (1) are
significantly different (unusual) from the typical or the
normal operating activities of a business and (2) occur
infrequently.
Fixed asset impairmentsA condition when the fair value
of a fixed asset falls below its book value and is not expected
to recover.
Held-to-maturity securitiesDebt securities intended to
be held until maturity, which are disclosed at amortized cost.
InvestmentsThe balance sheet caption used to report long-
term investments in stocks not intended as a source of cash in
the normal operations of the business.
Parent companyThe corporation owning all or a majority
of the voting stock of the other corporation.
Price-book ratioThe ratio of the market value of a share
of common stock to the book value of a share of common
stock.Price-earnings ratioThe ratio computed by dividing a cor-
poration’s stock market price per share at a specific date by
the company’s annual earnings per share.Restructuring chargeThe cost of accrued employee ter-
mination benefits associated with a management-approved
employee termination plan.Subsidiary companyThe corporation that is controlled by
a parent company.Temporary investmentsThe balance sheet caption used
to report investments in income-yielding securities that can
be quickly sold and converted to cash as needed.Trading securitiesSecurities that management intends to
actively trade for profit.Unrealized holding gain or lossThe difference between
the fair market values of the securities and their cost.