Question

Grouper Corporation is preparing the comparative financial statements for the annual report to its shareholders for fiscal years ended May 31, 2017, and May 31, 2018. The income from operations for the fiscal year ended May 31, 2017, was $1,772,000 and income from continuing operations for the fiscal year ended May 31, 2018, was $2,440,000. In both years, the company incurred a 9% interest expense on $2,385,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss from discontinued operations of $585,000 on February 2018. The company uses a 40% effective tax rate for income taxes.

The capital structure of Grouper Corporation on June 1, 2016, consisted of 977,000 shares of common stock outstanding and 20,100 shares of $50 par value, 6%, cumulative preferred stock. There were no preferred dividends in arrears, and the company had not issued any convertible securities, options, or warrants.

On October 1, 2016, Grouper sold an additional 475,000 shares of the common stock at $20 per share. Grouper distributed a 20% stock dividend on the common shares outstanding on January 1, 2017. On December 1, 2017, Grouper was able to sell an additional 781,000 shares of the common stock at $22 per share. These were the only common stock transactions that occurred during the two fiscal years.

Determine the weighted-average number of shares that Grouper Corporation would use in calculating earnings per share for the fiscal year ended:

Weighted-average number of shares

(1) May 31, 2017 Entry field with incorrect answer now contains modified data

(2) May 31, 2018 Entry field with incorrect answer

Prepare, in good form, a comparative income statement, beginning with income from operations, for Grouper Corporation for the fiscal years ended May 31, 2017, and May 31, 2018. This statement will be included in Grouper’s annual report and should display the appropriate earnings per share presentations. (Round earnings per share to 2 decimal places, e.g. $1.55.)

Answer 1

Ques 1
2017	Dates	Shares		Fraction	Weighted
Event	Outstanding	Outstanding	Restatement	of Year	Shares
Beginning balance	June 1–Oct. 1	977,000	1.2	4/12	390,800
New Issue	Oct. 1–May 31	1,452,000	1.2	8/12	1,161,600
					1,552,400
2018
	Dates	Shares		Fraction	Weighted
Event	Outstanding	Outstanding	Restatement	of Year	Shares
Beginning balance	June 1–Dec. 1	1,742,400		6/12	871,200
New Issue	Dec. 1–May 31	2,523,400		6/12	1,261,700
					2,132,900
Ques 2
Grouper CORPORATION
INCOME STATEMENT
	2006	2007
Income from operations	$             1,772,000	$             2,440,000
Interest expense	$                214,650	$                214,650
Income before taxes	$             1,557,350	$             2,225,350
Income taxes at 40%	$                622,940	$                890,140
Income before extraordinary item	$                934,410	$             1,335,210
Extraordinary loss, net of income taxes of
585000*(100%-40%)		$                351,000
Net income	$                934,410	$                984,210
Earnings per share:
Income before extraordinary loss	$                       0.56	$                       0.60
Extraordinary loss		$                       0.16
Net income	$                       0.56	$                       0.43
interest expense
debt	2385000
interest rate	9%
interest expense	214650
preferrence dividends
no. of shares	20100
par value	50
dividend %	6%
preferrence dividends	60300
earnings per share	2017	2018
net income	934,410	1,335,210
less:pref dividend	-60300	-60300
income attributable to equity shareholders	874,110	1,274,910
divided by weighted no. of shares	1,552,400	2,132,900
EPS	$                       0.56	$                       0.60
extraordinary loss	2018
amount	351,000
divided by weighted no. of shares	2,132,900
EPS	$                       0.16
earnings per share
net income	$          984,210.00
less:pref dividend	$          (60,300.00)
income attributable to equity shareholders	$          923,910.00
divided by weighted no. of shares	$       2,132,900.00
EPS	$                       0.43