Monty Corporation is preparing the comparative financial statements for the annu

ID: 2336299 • Letter: M

Question

Monty 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 $1,778,000 and income from continuing operations for the fiscal year ended May 31, 2018, was $2,461,000. In both years, the company incurred a 10% interest expense on $2,316,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss from discontinued operations of $583,000 on February 2018. The company uses a 40% effective tax rate for income taxes.

The capital structure of Monty Corporation on June 1, 2016, consisted of 1,013,000 shares of common stock outstanding and 19,400 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, Monty sold an additional 500,000 shares of the common stock at $20 per share. Monty distributed a 20% stock dividend on the common shares outstanding on January 1, 2017. On December 1, 2017, Monty was able to sell an additional 776,000 shares of the common stock at $22 per share. These were the only common stock transactions that occurred during the two fiscal years.

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

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

Explanation / Answer

Solution:-

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

= 1,013,000 * 20%

= $202,600

= 1,013,000 + $202,600

= $1,215,600

= 4/ 12

= 0.333

= 1,215,600 * 0.333

= $401148

= 500,000 + 1,013,000 + $202,600

= $1,715,600

= 8/ 12

= 0.666

= 1,715,600 * 0.666

= $1,132,296

= 401148 + 1,132,296

= $1,533,444

=6/12

= 0.5

= 1,013,000 * 0.5

= $506,500

= 1013,000 + 776,000

= $1,789,000

6/12

=0.5

= 1,789,000 * 0.5

= $894,500

= $506,500 + $894,500

= $1,401,000

Monty Corporation

Comparative income statement

2017

= 1546400 - 618560

= $927,840

= 2229400 - 891760

= $1,337,640

583,000 * 40%

=$ 233,200

= 927,840 + 0

= $927,840

= $1,337,640 - $ 233,200

= $1,104,440

= $927,840 / $1,533,444

= $0.605

= 1,104,440 / $1,401,000

= $0.78

Loss from discountined operations

=233,200 / 1,401,000

= $0.166

= 0.78 - 0.166

= $0.614

May 31,2017 Date Common stock balance Stock dividend 20% Additional shares Total shares outstanding Number of months Weighted shares june 1 ,2016 $1,013,000