Question

Windsor 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 $1,778,000 and income from continuing operations for the fiscal year ended May 31, 2021, 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 2021. The company uses a 20% effective tax rate for income taxes. The capital structure of Windsor Corporation on June 1, 2019, 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, 2019, Windsor sold an additional 490,000 shares of the common stock at $20 per share. Windsor distributed a 20% stock dividend on the common shares outstanding on January 1, 2020. On December 1, 2020, Windsor 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. Your answer is correct. Identify whether the capital structure at Windsor Corporation is a simple or complex capital structure. Simple Capital Structure e Textbook and Media

Answer 1

Summary

Particulars	2020	2021
Net Income available to common stockholders	11,60,176	12,74,576
The weighted average number of shares	14,17,250	21,52,800
Earnings per Share($)	0.82	0.59

Workings:
WINDSOR CORPORATION
Comparative Income Statement for Fiscal Year Ended May 31, 2020 and 2021
Particulars		Workings	2020	2021
				Continuing Operations	Discontinuing Operations	Total
Income from Operations	(a)		17,78,000.00	25,47,000.00	-6,26,000.00	19,21,000.00
Interest Expense	(b)	$22,98,000*11%	-2,52,780.00			-2,52,780.00
Income before Taxes	(c )	(a)-(b)	15,25,220.00	25,47,000.00	-6,26,000.00	16,68,220.00
Tax on Total Income	(d)	(c )*20%	3,05,044.00			3,33,644.00
Net Income/(loss)	(e )	(c )-(d)	12,20,176.00			13,34,576.00
Dividend on Preferred stock	(f)	20000shares*$50*6%	60,000.00			60,000.00
Net Income after Preference Dividend	(g)	(e )-(f)	11,60,176.00			12,74,576.00
Weighted average number of shares	(h)	Separate working	14,17,250.00			21,52,800.00
Earning per Share   ($)	(i)	(g )/(h)	0.82			0.59
Note:
Dividend on cumulative preferred stock can be deducted even if no dividend is distributed for the year.
Dividend on Non- Cumulative preference stock can de be deducted only when payment is made.
The weighted average number of shares
Shares	Issue Month	Holding period	In Months	Working	Weighted average
9,69,000	Opening	Jun 2019 to May 2020	12		9,69,000.00
4,90,000	Oct-19	Oct 2019 to May 2020	8	490,000*8/12	3,26,667.00
2,91,800	Jan-20	Jan 2020 to May 2020	5	(969000+490000)*20%*5/12	1,21,583.00
				(See Note below)
The weighted average number of shares for 2020					14,17,250.00
9,69,000	Opening	Jun 2020 to May 2021	12		9,69,000.00
4,90,000	Opening	Jun 2020 to May 2021	12		4,90,000.00
2,91,800	Opening	Jun 2020 to May 2021	12		2,91,800.00
8,04,000	Dec-20	Dec 2020 to May 2021	6	804,000*6/12	4,02,000.00
The weighted average number of shares for 2021					21,52,800.00
Note:
Windsor distributed a 20% stock dividend on common shares outstanding as on January 1, 2020.
Number of shares issued as a stock dividend	(969000+490000)*20%	2,91,800.00