Entrust, Inc., is a global provider of security software; it operates in one business segment involving the design, production, and sale of software products for securing digital identities and information. The consolidated statements of operations for a three-year period (all values in thousands) follows. On January 1, Year 1, the Entrust common shares traded at $10.40 per share; by year end Year 3, the shares traded at $3.80 per share. The companys cash flow from operations was $(27,411), $(20,908), and $9,606, for Year 1, Year 2, and Year 3, respectively. Calculate the sustainable earnings of Entrust, Inc., for each of the three years. Compare the companys reported net income (loss) with its sustainable earnings. Does Entrusts share price at year-end Year 3 reflect the firms apparent turn-around? Why or why not?

\begin{tabular}{|l|r|r|r|} \hline \multicolumn{1}{|c}{\begin{tabular}{c} ENTRUST, INC. \\ \multicolumn{1}{|c|}{ Yearsolidated Statements of Operations } \\ Year 3 \end{tabular}} & Year 2 & Year 1 \\ \hline Revenues & & & \\ \hline Product & $32,305 & $33,984 & $47,744 \\ \hline Services and maintenance & 61,662 & 56,920 & 58,013 \\ \hline Total revenues & 93,967 & 90,904 & 105,757 \\ \hline Cost of Revenues & & & \\ \hline Product & $4,429 & $5,621 & $5,561 \\ \hline Services and maintenance & 29,105 & 29,825 & 32,073 \\ \hline Amortization of purchased product rights & 384 & 568 & 1,136 \\ \hline Total cost of revenues & 33,918 & 36,014 & 38,770 \\ \hline Gross profit & 60,049 & 54,890 & 66,987 \\ \hline Operating expenses & & & \\ \hline Sales and marketing & & & \\ \hline Research and development & 26,322 & 34,985 & 44,128 \\ \hline General and administrative & 17,266 & 22,566 & 24,151 \\ \hline Impairment of purchased product rights & 12,569 & 13,143 & 14,840 \\ \hline Restructuring charges and adjustments & & 1,414 & (1,259) \\ \hline Total operating expenses & & 14,078 & (1,359) \\ \hline Income (loss) from operations & 56,157 & 86,186 & 80,501 \\ \hline \end{tabular} \begin{tabular}{|l|r|r|r|} \hline Other income (expense) & & & \\ \hline Interest income & 1,281 & 1,680 & 3,346 \\ \hline Foreign exchange gain (loss) & 429 & (431) & (72) \\ \hline Loss from equity investments & (1,391) & (883) & (882) \\ \hline Realized loss on investments & & (2,780) & (500) \\ \hline Write-down of long-term strategic investments & & (2,780) & (1,238) \\ \hline Total other income (expense) & 319 & (5,194) & 654 \\ \hline Income (loss) before income taxes and minority interest & 4,211 & (36,490) & (12,860) \\ \hline Noncontrolling interest in subsidiary & 4 & & \\ \hline Income (loss) before income taxes & 4,215 & (36,490) & (12,860) \\ \hline Provision for income taxes & 1,644 & 438 & 1,042 \\ \hline Net income (loss) & $2,571 & $(36,928) & $(13,902) \\ \hline \end{tabular} Calculate the sustainable earnings of Entrust, Inc., for each of the three years. Remember to use negative signs with answers, when appropriate. \begin{tabular}{c|cccc} & Year 3 & Year 2 & Year 1 \\ \hline Permanent earnings $ & 1,016$ & (43,789) & 2,335 \end{tabular} Check \begin{tabular}{|l|r|r|r|} \hline \multicolumn{1}{|c}{\begin{tabular}{c} ENTRUST, INC. \\ \multicolumn{1}{|c|}{ Yearsolidated Statements of Operations } \\ Year 3 \end{tabular}} & Year 2 & Year 1 \\ \hline Revenues & & & \\ \hline Product & $32,305 & $33,984 & $47,744 \\ \hline Services and maintenance & 61,662 & 56,920 & 58,013 \\ \hline Total revenues & 93,967 & 90,904 & 105,757 \\ \hline Cost of Revenues & & & \\ \hline Product & $4,429 & $5,621 & $5,561 \\ \hline Services and maintenance & 29,105 & 29,825 & 32,073 \\ \hline Amortization of purchased product rights & 384 & 568 & 1,136 \\ \hline Total cost of revenues & 33,918 & 36,014 & 38,770 \\ \hline Gross profit & 60,049 & 54,890 & 66,987 \\ \hline Operating expenses & & & \\ \hline Sales and marketing & & & \\ \hline Research and development & 26,322 & 34,985 & 44,128 \\ \hline General and administrative & 17,266 & 22,566 & 24,151 \\ \hline Impairment of purchased product rights & 12,569 & 13,143 & 14,840 \\ \hline Restructuring charges and adjustments & & 1,414 & (1,259) \\ \hline Total operating expenses & & 14,078 & (1,359) \\ \hline Income (loss) from operations & 56,157 & 86,186 & 80,501 \\ \hline \end{tabular} \begin{tabular}{|l|r|r|r|} \hline Other income (expense) & & & \\ \hline Interest income & 1,281 & 1,680 & 3,346 \\ \hline Foreign exchange gain (loss) & 429 & (431) & (72) \\ \hline Loss from equity investments & (1,391) & (883) & (882) \\ \hline Realized loss on investments & & (2,780) & (500) \\ \hline Write-down of long-term strategic investments & & (2,780) & (1,238) \\ \hline Total other income (expense) & 319 & (5,194) & 654 \\ \hline Income (loss) before income taxes and minority interest & 4,211 & (36,490) & (12,860) \\ \hline Noncontrolling interest in subsidiary & 4 & & \\ \hline Income (loss) before income taxes & 4,215 & (36,490) & (12,860) \\ \hline Provision for income taxes & 1,644 & 438 & 1,042 \\ \hline Net income (loss) & $2,571 & $(36,928) & $(13,902) \\ \hline \end{tabular} Calculate the sustainable earnings of Entrust, Inc., for each of the three years. Remember to use negative signs with answers, when appropriate. \begin{tabular}{c|cccc} & Year 3 & Year 2 & Year 1 \\ \hline Permanent earnings $ & 1,016$ & (43,789) & 2,335 \end{tabular} Check