Question

Problem 16-9 Headland Corporation is preparing the comparative financial statements to be included in the annual report to stockholders. Headland employs a fiscal year ending May 31. Income from operations before income taxes for Headland was $1,420,000 and $711,000, respectively, for fiscal years ended May 31, 2018 and 2017. Headland experienced a loss from discontinued operations of $415,000 on March 3, 2018. A 40% combined income tax rate pertains to any and all of Headland Corporation’s profits, gains, and losses. Headland’s capital structure consists of preferred stock and common stock. The company has not issued any convertible securities or warrants and there are no outstanding stock options. Headland issued 39,700 shares of $100 par value, 6% cumulative preferred stock in 2014. All of this stock is outstanding, and no preferred dividends are in arrears. There were 1,056,000 shares of $1 par common stock outstanding on June 1, 2016. On September 1, 2016, Headland sold an additional 364,800 shares of the common stock at $16 per share. Headland distributed a 20% stock dividend on the common shares outstanding on December 1, 2017. These were the only common stock transactions during the past 2 fiscal years. Determine the weighted-average number of common shares that would be used in computing earnings per share on the current comparative income statement for: Weighted-average number of common shares (1) The year ended May 31, 2017. (2) The year ended May 31, 2018. Starting with income from operations before income taxes, prepare a comparative income statement for the years ended May 31, 2018 and 2017. The statement will be part of Headland Corporation’s annual report to stockholders and should include appropriate earnings per share presentation. (Round earnings per share to 2 decimal places, e.g. $2.55.) HEADLAND CORPORATION Comparative Income Statement For the Years Ended May 31, 2018 and 2017 2018 2017 $ $ $ $ Earnings per share $ $ $ $ Question Attempts: 0 of 5 used Save for later Submit Answer

Answer 1

1	Requirement
	Particulars	Date O/S	Share			Fraction of yr	Weighted Shares
	Beginning
	Balance	1-Jun-16	1056000			1	1056000
	Issue Shares	1st sep -1st Dec	364800			9	273600
	20 % Stock	1st Dec -May 31 2017	284160			6	142080
	Dividend						1471680
	Here the stock dividend is calculated at 20% on shares o/s as on 1st Dec ie 1420800 ie
	Particulars	Date O/S	Share			Fraction of yr	Weighted Shares
	31st May 2017
	Beginning Balance	1st Jun-31st May 2018	1704960			1	1704960
	Therefore the weighted number of shares are the following
	May 31 -2017	1476180
	May 31-2018	1704960
2	Requirement
		Headland Corporation
		Income Statement
		For the fiscal years ended May 31 2017 ,2018
		2017	2018
	Income From Operations	$1,420,000	$711,000
	Income Before Tax before extraordinary items	$1,420,000	$711,000
	Income tax @ 40	$568,000	$284400
	Income from contunuing opeartions after tax	$852000	$426600
	ordinary items
	Loss of Discontinued		($415,000)
	Operations as given
	Net Income	$852,000	$11600
	Preferred Dividend
	6% *39700*100	$238,200	$238,200
	Net Income /Loss After pref	$613,800.0	($226600)
	Dividend
	No of Weighted Shares	1471680	1704960
	EPS	$0.42	($0.13)