Question 1 Not complete Marked out of 2.00 P Flag question Permanent Versus Transitory Earnings 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 company's cash flow from operations was $(27,411), $(20,908), and $9,606, for Year 1, Year 2, and Year 3, respectively. Calculate the sustainable earnings of Entrust, Inc., for each of the three years. Compare the company's reported net income (loss) with its sustainable earnings. Does Entrust's share price at year-end Year 3 reflect the firm's apparent turn-around? Why or why not? ENTRUST, INC. Consolidated Statements of Operations Year Ended December 31 ($ thousands) Year 3 Year 2 Year 1 Revenues Product $29,295 $30,974 $44,734 Services and maintenance 61,662 56,920 58,013 Total revenues 90,957 87,894 102,747 Cost of Revenues Product $ 4,149 $ 5,341 $5,281 Services and maintenance 29,105 29,825 32,073 Amortization of purchased product rights 384 568 1,136 Total cost of revenues 33,638 35,734 38,490 Gross profit 57,319 52,160 64,257 Operating expenses Sales and marketing 26,322 34,985 44,128 Research and development 17,266 22,566 24,151 General and administrative 12,569 13,143 14,840 Impairment of purchased product rights 1,134 Restructuring charges and adjustments 13,623 (1,079) Total operating expenses 56,157 85,451 82,040 Income (loss) from operations 1,162 (33,291) (17,783) Other income (expense) Interest income 1,281 1,680 3,346 Foreign exchange gain (loss) 429 (72) Loss from equity investments (1,111) (603) (602) Realized loss on investments (220) Write-down of long-term strategic investments (2,780) (1,238) Total other income (expense) 599 (2,134) 1,214 Income (loss) before income taxes and minority interest 1,761 (35,425) (16,569) Noncontrolling interest in subsidiary 4 Income (loss) before income taxes 1,765 (35,425) (16,569) Provision for income taxes 687 441 1,350 Net income (loss) $ 1,078 $(35,866) $(17,919) (431) Calculate the sustainable earnings of Entrust, Inc., for each of the three years. Remember to use negative signs with answers, when appropriate. Year 3 Year 2 Year 1 Permanent earnings $ $ $ Check Question 2 Not complete Marked out of 2.00 P Flag question Calculating Earnings per Share James, Inc., reported earnings of $165,000 for the year, and at the end of the year, had the following securities outstanding: 1.60,000 shares of common stock. (The year-end share price was $25 per share.) 2. Employee stock options for the purchase of 10,000 common shares at an exercise price of $22 per share. (The options are fully vested.) (a) Calculate the basic earnings per share for James, Inc. Round to two decimal places. (b) Calculate the diluted earnings per share for James, Inc. Round to two decimal places. Hint - Do not consider the effect of the treasury stock buyback as this technical issue is not covered in the chapter. Check Save Answers Next > Question 3 Not complete Marked out of 6.00 P Flag question Statement of Cash Flow Presented below are the financial statements for the Lincoln Corporation, as of year-end 2020 and 2019. LINCOLN CORPORATION Consolidated Balance Sheets As of Year-End ($ thousands) 2020 2019 Assets Current Cash $23,000 $90,000 Marketable securities 200,000 Accounts receivable (net) 590,000 440,000 Inventory 587,000 615,000 Total current assets 1,400,000 1,145,000 Noncurrent Long-term investments 310,000 390,000 Property & equipment 1,800,000 1,100,000 Less: Accumulated depreciation (500,000) (500,000) Property & equipment (net) 1,300,000 600,000 Intangibles (net) 95,000 105,000 Total noncurrent assets 1,705,000 1,095,000 Total assets $3,105,000 $2,240,000 Liabilities & Shareholders' Equity Accounts payable $890,000 $850,000 Short-term bank debt 190,000 Total liabilities 1,080,000 850,000 Shareholders' equity Common stock, $10 par value 775,000 675,000 Additional paid-in-capital 380,000 300,000 Retained earnings 870,000 415,000 Total shareholders' equity 2,020,000 1,390,000 Total liabilities & shareholders' equity $3,105,000 $2,240,000 LINCOLN CORPORATION Consolidated Income Statement For Year Ended ($ thousands) 2020 2019 Revenues $1,448,000 $1,200,000 Less: Cost of goods sold 513,000 420,000 Gross margin 935,000 780,000 Less: Selling, general & administrative expenses 150,000 120,000 Operating income 785,000 660,000 Gain on sale of investments 70,000 Net income before taxes 855,000 660,000 Less: Income taxes 50,000 11,000 Net income after taxes $805,000 $649,000 The footnotes to the Lincoln Corporation's financial statements revealed the following additional information: 1. Property and equipment costing $450 million was sold for its book value of $200 million. 2. Long-term investments were sold for $ 150 million, which included a gain of $70 million. Required Using the above financial data for the Lincoln Corporation, prepare the firm's statement of cash flow for 2020 using the indirect method. What does the company's statement of cash flow reveal about the business's financial health? Use a negative sign with answers to indicate a decrease in cash. Required Using the above financial data for the Lincoln Corporation, prepare the firm's statement of cash flow for 2020 using the indirect method. What does the company's statement of cash flow reveal about the business's financial health? Use a negative sign with answers to indicate a decrease in cash. Lincoln Corporation Statement of Cash Flows For Year Ended 2020 (in thousands) $ Add: Amortization expense Less: Accounts receivable (net) Inventory Marketable securities Long-term investments Purchase of property and equipment Short-term bank debt Common stock + additional paid in capital Cash, beginning of year Cash, end of year $ Check Question 3 Not complete Marked out of 6.00 P Flag question Statement of Cash Flow Presented below are the financial statements for the Lincoln Corporation, as of year-end 2020 and 2019. LINCOLN CORPORATION Consolidated Balance Sheets As of Year-End ($ thousands) 2020 2019 Assets Current Cash $23,000 $90,000 Marketable securities 200,000 Accounts receivable (net) 590,000 440,000 Inventory 587,000 615,000 Total current assets 1,400,000 1,145,000 Noncurrent Long-term investments 310,000 390,000 Property & equipment 1,800,000 1,100,000 Less: Accumulated depreciation (500,000) (500,000) Property & equipment (net) 1,300,000 600,000 Intangibles (net) 95,000 105,000 Total noncurrent assets 1,705,000 1,095,000 Total assets $3,105,000 $2,240,000 Liabilities & Shareholders' Equity Accounts payable $890,000 $850,000 Short-term bank debt 190,000 Total liabilities 1,080,000 850,000 Shareholders' equity Common stock, $10 par value 775,000 675,000 Additional paid-in-capital 380,000 300,000 Retained earnings 870,000 415,000 Total shareholders' equity 2,020,000 1,390,000 Total liabilities & shareholders' equity $3,105,000 $2,240,000 LINCOLN CORPORATION Consolidated Income Statement For Year Ended ($ thousands) 2020 2019 Revenues $1,448,000 $1,200,000 Less: Cost of goods sold 513,000 420,000 Gross margin 935,000 780,000 Less: Selling, general & administrative expenses 150,000 120,000 Operating income 785,000 660,000 Gain on sale of investments 70,000 Net income before taxes 855,000 660,000 Less: Income taxes 50,000 11,000 Net income after taxes $805,000 $649,000 The footnotes to the Lincoln Corporation's financial statements revealed the following additional information: 1. Property and equipment costing $450 million was sold for its book value of $200 million. 2. Long-term investments were sold for $ 150 million, which included a gain of $70 million. Required Using the above financial data for the Lincoln Corporation, prepare the firm's statement of cash flow for 2020 using the indirect method. What does the company's statement of cash flow reveal about the business's financial health? Use a negative sign with answers to indicate a decrease in cash. Required Using the above financial data for the Lincoln Corporation, prepare the firm's statement of cash flow for 2020 using the indirect method. What does the company's statement of cash flow reveal about the business's financial health? Use a negative sign with answers to indicate a decrease in cash. Lincoln Corporation Statement of Cash Flows For Year Ended 2020 (in thousands) $ Add: Amortization expense Less: Accounts receivable (net) Inventory Marketable securities Long-term investments Purchase of property and equipment Short-term bank debt Common stock + additional paid in capital Cash, beginning of year Cash, end of year $ Check