Question

Cullumber 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 $2,547,000. In both years, the company incurred a 11% Interest expense on $2,298,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss from discontinued operations of $626,000 on February 2018. The company uses a 40% effective tax rate for Income taxes. The capital structure of Cullumber Corporation on June 1, 2016, consisted of 969.000 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, Cullumber sold an additional 490,000 shares of the common stock at $20 per share. Cullumber distributed a 20% stock dividend on the common shares outstanding on January 1, 2017. On December 1, 2017. Cullumber was able to sell an additional 804,000 shares of the common stock at $22 per share. These were the only common stock transactions that occurred during the two fiscal years.

Answer 1

Cullumber Corporation
Comparative Income Statement
	2017	2018
Income from operations	1778000	2547000
Interest Expense	252780	252780
Income Before taxes	1525220	2294220
Income Tax expense	610088	917688
	(1525220*40%)	(2294220*40%)
Income from Continuing Operations	915132	1376532
	(1525220 - 610088)	(2294220 - 917688)
Income/Loss from discontinued operations	0	626000
Net Income	915132	750532
		(1376532 - 626000)
Earnings per share
Basic Earnings per share	0.61	0.31
Diluted Earnings per share	0.61	0.31
Weighted average shares used in computation of EPS	1404417	2263000
Computation of Net Income for computing EPS
Net Income	915132	750532
Less: Preferred Dividend (20000*50*6%)	60000	60000
Net income available to common stockholders	855132	690532
Computation of Weighted average shares for computing EPS
Period	Shares Outstanding	Portion of year outstanding	Weighted shares
1 Jan 2017 to 1 Dec 2017 ( 969000 + 490000)	1459000	11/12	1337417
1 Dec 2017 to 31 Dec 2017	804000	1/12	67000
			1404417
1 Jan 2018 to 31 Dec 2018 ( 1459000 + 804000)	2263000	12/12	2263000
Computation of EPS
Basic Earnings per share	0.61	0.31
(Net income available to common / Weighted average shares)	(855132 / 1404417)	(690532 / 2263000)
Diluted Earnings per share	0.61	0.31