Question

Buffalo 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 $1,800,000 and income from continuing operations for the fiscal year ended May 31, 2018, was $2,500,000. In both years, the company incurred a 10% interest expense on $2,400,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss from discontinued operations of $600,000 on February 2018. The company uses a 40% effective tax rate for income taxes.

The capital structure of Buffalo Corporation on June 1, 2016, consisted of 1,000,000 shares of common stock outstanding and 20,000 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, Buffalo sold an additional 500,000 shares of the common stock at $20 per share. Buffalo distributed a 20% stock dividend on the common shares outstanding on January 1, 2017. On December 1, 2017, Buffalo was able to sell an additional 800,000 shares of the common stock at $22 per share. These were the only common stock transactions that occurred during the two fiscal years.

1.) Identify whether the capital structure is simple or complex and explain why

2.) Determine the Weighted-Average number of share used in calculating earnings per share for:
May 31, 2017:
May 31, 2018:

3.)Prepare a comparitive income statement beginning with income from operations for both the fiscal years .

Answer 1

Formula :