Evaluate the effects of unusual or irregular items.

The Wall Street Journal routinely publishes summaries of corporate quarterly and annual earnings reports in a feature called the “Earnings Digest.” A typical “digest” report takes the following form.

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(a) How was the loss on the electrical equipment reported on the income statement? Was it reported in the fourth quarter of 2011? How can you tell?

(b) Why did the Wall Street Journal list the extraordinary item separately?

(c) What is the extraordinary item? Was it included in income for the fourth quarter? How can you tell?

(d) Did Energy Enterprises have an operating loss in any quarter of 2011? Of 2012? How do you know?

(e) Approximately how many shares of stock were outstanding in 2012? Did the number of outstanding shares change from July 31, 2011 to July 31, 2012?

(f) As an investor, what numbers should you use to determine Energy Enterprises’ profit margin ratio? Calculate the profit margin ratio for 2011 and 2012 that you consider most useful. Explain your decision.

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