Ace Company's income statements for the three years 2012, 2011, and 2010 are given below (all amounts in S millions): 2012 2011 2010 Sales 3,424 (1.604) 1,820 (1,260) 3,036 (1.297) 1,738 (1,099) 2,818 (1,157) 1,661 (1,126) (765) Cost of goods sold Gross profit Selling, general administration Restructuring Goodwill impairment Other income (expense) Tax provision ..... Income from continuing operations Income from discontinued operation Gain on discontinued operation. Net income. (23) 110 (201) 33 (222) 55 19 (155) 55 447 451 46 32 69 548 497 (100) Note information from the annual report provided the following additional information: 1. Other income (expense) comprised the following: 2012 2011 2010 173 (189) 194 (130) Interest income Interest expense Loss on early extinguishment of debt Gain (loss) from sale of business units. Gain (loss) from sale of marketable securities Unrealized gain (loss) on trading securities Early retirement charge. 159 (215) (13) 80 122 11 (34) 110 55 (6) (11) 2 33 55 2. In 2012, cost of goods sold included inventory write-off of $45 million. This write-off pertained to obsolete in- ventory 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 im- pairments and the remaining $453 million was cash payments related to lease cancellations, employee re- trenchment, 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: 2012 2011 Foreign currency translation gains 23 Unrealized gain (loss) on available for sale securities 23 (33) Postretirement benefit adjustment 173 345 219 316 2010 4 55 (40) (433) (418) Chapter Six I Analyzing Operating Activities 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 ... Fair market value. 112 285 116 245 120 220 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. Ace Company's income statements for the three years 2012, 2011, and 2010 are given below (all amounts in S millions): 2012 2011 2010 Sales 3,424 (1.604) 1,820 (1,260) 3,036 (1.297) 1,738 (1,099) 2,818 (1,157) 1,661 (1,126) (765) Cost of goods sold Gross profit Selling, general administration Restructuring Goodwill impairment Other income (expense) Tax provision ..... Income from continuing operations Income from discontinued operation Gain on discontinued operation. Net income. (23) 110 (201) 33 (222) 55 19 (155) 55 447 451 46 32 69 548 497 (100) Note information from the annual report provided the following additional information: 1. Other income (expense) comprised the following: 2012 2011 2010 173 (189) 194 (130) Interest income Interest expense Loss on early extinguishment of debt Gain (loss) from sale of business units. Gain (loss) from sale of marketable securities Unrealized gain (loss) on trading securities Early retirement charge. 159 (215) (13) 80 122 11 (34) 110 55 (6) (11) 2 33 55 2. In 2012, cost of goods sold included inventory write-off of $45 million. This write-off pertained to obsolete in- ventory 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 im- pairments and the remaining $453 million was cash payments related to lease cancellations, employee re- trenchment, 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: 2012 2011 Foreign currency translation gains 23 Unrealized gain (loss) on available for sale securities 23 (33) Postretirement benefit adjustment 173 345 219 316 2010 4 55 (40) (433) (418) Chapter Six I Analyzing Operating Activities 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 ... Fair market value. 112 285 116 245 120 220 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