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:


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Year Ended



(In thousands except per share amounts)










1  Net sales





Operating costs and expenses:





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





3        Selling, general, and administrative expenses




  4        Depreciation and amortization


5                Operating income (loss)









Nonoperating (income) and expenses:





6        Interest and investment income





7        Interest expense





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

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


(1,080) 99,710

36,684 187,375








12        Income (loss) from discontinued operations




  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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