Scribd
Upload
16 views

Case 6.1 Question

The document provides income statements and notes for Ace Company for 2012, 2011, and 2010. It includes details on items included in revenues, expenses, restructuring charges, shareholder's equity, and fair value of office property. The task is to determine core income, comprehensive income, sustainable income, and economic income for each year based on the information provided.

Uploaded by

dianedinzila.dd
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
16 views

Case 6.1 Question

The document provides income statements and notes for Ace Company for 2012, 2011, and 2010. It includes details on items included in revenues, expenses, restructuring charges, shareholder's equity, and fair value of office property. The task is to determine core income, comprehensive income, sustainable income, and economic income for each year based on the information provided.

Uploaded by

dianedinzila.dd
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 2

1.

Ace Company's income statements for the three years 2012, 2011, 2010 are given below (All amounts in
$ millions):

2012 2011 2010


Sales 3,424 3,036 2,818
Cost of goods sold (1,604) (1,297) (1,157)
Gross profit 1,820 1,738 1,661
Selling, general administration (1,260) (1,099) (1,126)
Restructuring (765)
Goodwill impairment (23)
Other income (expense) 110 33 55
Tax Provision (201) (222) 19
Income from continuing operations 447 451 (155)
Income from discontinued operation 32 46 55
Gain on discontinued operation 69
Net income 548 497 (100)

Note information from the annual report provided the following additional information:
1. Other income (expense) comprised the following:
2012 2011 2010
Interest income 159 173 194
Interest expense (215) (189) (130)
Loss on early extinguishment of debt (13)
Gain (loss) from sale of business units 80
Gain (loss) from sale of marketable securities 122 55 (11)
Unrealized gain (loss) on trading securities 11 (6) 2
Early retirement charge (34)
110 33 55

2. In 2012, cost of goods sold included inventory write-off of $ 45 million. This write-off pertained to
obsolete inventory that was not sold for many years. Much of the written down inventory was
unsold at the end of 2012.
3. Selling, general administration included share compensation expense of $ 23, $ 25 and $22 million
respectively for 2012, 2011 and 2010. This expense relates to option grants given to the new CEO
in 2010, which was valued at around $ 70 million on the date of grant.

4. The restructuring charge in 2010 was taken to significantly downsize and streamline operations and
close a number of underperforming businesses. Of the charge of $ 765 million, $ 312 million was
in the form of asset impairments and the remaining $ 453 million was cash payments related to
lease cancellations, employee retrenchment and reorganization costs. It was expected that this
restructuring would lead to cost reductions and improved efficiency that would last at least five
years.

3. The following items were reported in the statement of shareholder's equity:


2012 2011 2010
Foreign currency translation gains 23 4 55
Unrealized gain (loss) on available for sale securities 23 (33) (40)
Postretirement benefit adjustment 173 345 (433)
219 316 (418)
5. The company has significant office property that is reported at amortized cost on the balance sheet.
The fair market value of this property was considerably larger than its amortized cost, as shown in
the table below:

2012 2011 2010


Amortized Cost 112 116 120
Fair Market value 285 245 220

Assume a marginal tax rate of 35% on all adjustments made to income.

Required

For all three years determine (1) core income (2) comprehensive income (3) sustainable income and (4)
economic income. Explain the basis for your calculations.

You might also like