Question

Pina Corporation is preparing the comparative financial statements for the annual report to its shareholders for fiscal years ended May 31, 2020, and May 31, 2021. The income from operations for the fiscal year ended May 31, 2020, was $1,818,000 and income from continuing operations for the fiscal year ended May 31, 2021, was $2,424,000. In both years, the company incurred a 10% interest expense on $2,424,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss from discontinued operations of $575,000 on February 2021. The company uses a 20% effective tax rate for income taxes.

The capital structure of Pina Corporation on June 1, 2019, consisted of 1,037,000 shares of common stock outstanding and 19,100 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, 2019, Pina sold an additional 511,000 shares of the common stock at $20 per share. Pina distributed a 20% stock dividend on the common shares outstanding on January 1, 2020. On December 1, 2020, Pina was able to sell an additional 785,000 shares of the common stock at $22 per share. These were the only common stock transactions that occurred during the two fiscal years.

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is incorrect.

Identify whether the capital structure at Pina Corporation is a simple or complex capital structure.

                                                                      Simple Capital StructureComplex Capital Structure

  

  

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is partially correct.

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

				Weighted-average number of shares
(1)		May 31, 2020
(2)		May 31, 2021

  

  

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is partially correct.

Prepare, in good form, a comparative income statement, beginning with income from operations, for Pina Corporation for the fiscal years ended May 31, 2020, and May 31, 2021. This statement will be included in Pina’s annual report and should display the appropriate earnings per share presentations. (Round earnings per share to 2 decimal places, e.g. $1.55.)

PINA CORPORATION Comparative Income Statement For Fiscal Years Ended May 31, 2020 and 2021
	2020	2021
DividendsExpensesExtraordinary LossIncome Before Extraordinary LossIncome Before TaxesInterest ExpenseIncome From Continuing OperationsIncome From OperationsIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues	$	$
DividendsExpensesExtraordinary LossIncome Before Extraordinary LossIncome Before TaxesInterest ExpenseIncome From Continuing OperationsIncome From OperationsIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues
DividendsExpensesExtraordinary LossIncome Before Extraordinary LossIncome Before TaxesInterest ExpenseIncome From Continuing OperationsIncome From OperationsIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues
DividendsExpensesExtraordinary LossIncome Before Extraordinary LossIncome Before TaxesInterest ExpenseIncome From Continuing OperationsIncome From OperationsIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues
DividendsExpensesExtraordinary LossIncome Before Extraordinary LossIncome Before TaxesInterest ExpenseIncome From Continuing OperationsIncome From OperationsIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues
DividendsExpensesExtraordinary LossIncome Before Extraordinary LossIncome Before TaxesInterest ExpenseIncome From Continuing OperationsIncome From OperationsIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues
DividendsExpensesExtraordinary LossIncome Before Extraordinary LossIncome Before TaxesInterest ExpenseIncome From Continuing OperationsIncome From OperationsIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues	$	$
Earnings per share:
DividendsExpensesExtraordinary LossIncome Before Extraordinary LossIncome Before TaxesInterest ExpenseIncome From Continuing OperationsIncome From OperationsIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues	$	$
DividendsExpensesExtraordinary LossIncome Before Extraordinary LossIncome Before TaxesInterest ExpenseIncome From Continuing OperationsIncome From OperationsIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues
DividendsExpensesExtraordinary LossIncome Before Extraordinary LossIncome Before TaxesInterest ExpenseIncome From Continuing OperationsIncome From OperationsIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues	$	$

Answer 1

Solution-
a)The Capital structure of this corporation is simple as it has only issued Common Stock and Preferred Stock shares. In the complex capital structure company also has the dilutive securities like convertible securities, options, or warrants. In addition to this the companies with Simple Capital structure are only required to report basic EPS whereas the ones with Complex capital structure also need to report EPS with dilluted basis.

b)

01-Jun-19	Cumulative Stock ($50 par value, 6%)	19,100
01-Jun-19	Common Stock Outstanding	1,037,000
01-Jan-2020	20% Stock Dividend on Common Stock (1,037,000 *20%)	207400
01-Jan-2020	Common Stock ($20 per share sold)	511,000
01-Dec-2020	Common Stock ($22 per share sold)	785,000
	Outstanding Shares at the end of 2021	2559500

The weighted average number of shares is to be calculated by taking the number of outstanding shares and multiplying the portion of the reporting period these shares covered, this is to be done for each portion and, then sum all.

Weighted Average number of shares
1. May 31, 2020
Particulars	Number of shares	Caculation	Weighted Avg. No.of Shares
June 1, 2019	1,037,000	1,037,000 X 12Months/12Months	1,037,000
Oct 1, 2019	511,000	511,000 X 8Months/12Months	340667
Total			1377667
2. May 31, 2021
Particulars	Number of shares	Caculation	Weighted Avg. No.of Shares
June 1, 2020	1548000	1548000X 12Months/12Months	1548000
Dec 1, 2019	785,000	785,000 X 6Months/12Months	392500
Total			1940500
Weighted Average number of shares
1. May 31, 2020	1377667
2. May 31, 2021	1940500

c) Pina Corporation
Comparative Income Statement
For Fiscal Years Ended May 31, 2020 and 2021

PARTICULARS MAY 31,2020 MAY 31,2021
REVENUE FROM OPERATIONS 1818000 2,424,000
EXPENSES-
INTEREST EXPENSE(2,424,000*10%) 242400 242400
Income Before Tax 1575600 2181600
Tax Expense @ 20% 315120 436320
Income after Tax from Continuing operations 1260480 1745280
Income/(loss) after tax from Discontinuing operations (460000)

Total Income for the period 1260480 1285280
Earnings Per Share
EPS from Continuing operations 0.92 0.90
EPS from Discontinued operations 0.00 -0.24
Total EPS 0.92 0.66  
  
WORKING NOTES-

Calculation
Income/(Loss) after tax from Discontinuing operations
Loss from Discontinued Operations		$575000
Less: tax Expense @ 20%		$115000
Loss after tax		$460000