Ace Company€™s income statements for the three years 2012, 2011, and 2010 are given below (all amounts in $ millions):

1. Other income (expense) comprised the following:

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.
The following items were reported in the statement of shareholders€™ equity:

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:

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 yourcalculations.

Transcribed Image Text:

2011 3,036 (1,297) 1,738 (1,099) 2012 2010 2,818 (1,157) 1,661 (1,126) (765) Sales Cost of goods sold Gross profit. .. Selling, general administration Restructuring. Goodwill impairment Other income (expense) lax provision Income from continuing operations Income from discontinued operation Gain on discontinued operation. Net income 3,424 (1,604) 1,820 (1,260) . . . (23) 110 (222) 451 46 19 447 32 69 548 (155) . 497 (100) 2011 173 (189) 2012 2010 Interest income Interest expense Loss on early extinguishment of debt Gain (loss) from sale of business units Gain (loss) from sale of marketable securities122 Unrealized gain (loss) on trading securities Early retirement charge (130) (215) (13) 80 110 2012 2011 2010 Foreign currency translation gainsr.. . 23 Unrealized gain (loss) on available for sale securities 23 173 219 (33) 345 (40) (433) (418) Postretirement benefit adjustment 316 Amortized cost Fair market value 112 .285 2012 2011 2010 116 120 245 220 ._