11 -2 (L earn i ng Obj ec tiv e 1: Ev al u a t e qu al it y o f earn i ngs ) Study the 2012 income..

11-2 (Learning Objective 1: Evaluate quality of earnings) Study the 2012 income statement of Original Imports, Inc., and answer these questions about the company:

 

 

 

 

 

 

 

 

Year Ended

 

 

(In thousands except per share amounts)

2012

2011

 

 

 

 

 

 

 

1  Net sales

$1,825,425

$1,806,475

 

 

Operating costs and expenses:

 

 

 

 

2        Cost of sales (including buying and store occupancy  costs)

1,121,490

1,045,580

 

 

3        Selling, general, and administrative expenses

549,850

526,150

 

  4        Depreciation and amortization

 

5                Operating income (loss)

55,275

48,450

1,726,615

1,620,180

98,810

186,295

 

 

Nonoperating (income) and expenses:

 

 

 

 

6        Interest and investment income

(2,625)

(2,710)

 

 

7        Interest expense

1,725

1,630

 

   

8 Income (loss) from continuing operations before income taxes 9 Provision (benefit) for income taxes

10 Income (loss) from continuing operations 11  Discontinued operations:

(900)

(1,080) 99,710

36,684 187,375

69,615

63,026

117,760

 

 

 

 

12        Income (loss) from discontinued operations

(2,400)

280

 

  13  Net income (loss)

Earnings (loss) per share from continuing operations:

14        Basic

Earnings (loss) per share from discontinued operations:

15        Basic

Earnings (loss) per share:

16        Basic

$        60,626

$   118,040  

$             0.39  

$              1.62  

$            (0.03)  

$              0.00  

$             0.36  

$              1.62

 

 

1.    How much gross profit did Original earn on the sale of its products in 2012? How much was income from continuing operations? Net income?

2. At the end of 2012, what dollar amount of net income would most sophisticated investors use to predict Original’s net income for 2013 and beyond? Name this item, give its amount, and state your reason.

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