Question

Problem 16-06 Pronghorn 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 $1,819,000 and income from continuing operations for the fiscal year ended May 31, 2009 an income from continuing operations to distupca 2021, was $2,469,000. In both years, the company incurred a 10% interest expense on $2,394,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss from discontinued operations of $620,000 on February 2021. The company uses a 20% effective tax rate for income taxes. The capital structure of Pronghorn Corporation on June 1, 2019, consisted of 986,000 shares of common stock outstanding and 20,600 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, Pronghorn sold an additional 483,000 shares of the common stock at $20 per share. Pronghorn distributed a 20% stock dividend on the common shares outstanding on January 1, 2020. On December 1, 2020, Pronghorn was able to sell an additional 832,000 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 Pronghorn Corporation is a simple or complex capital structure. Simple Capital Structure

Answer 1

Pronghoon Corporation Comparative Income Statement For fiscal years Cended & May 31, 2020 and 2021 2020 Interest Expense (9239400) Income from Operations 1819000 Income before Taxes. 1579600 Income Taxes @ 20% (315920) Income from Continuing Operations / 1263680 Loss from discontinued operations (620000) Net Income / Closs) 643680 202 (239400) 2469000 2229600 (445920) 1783680 (6 20000 1163680 202o Earnings per share & Eps): Net Income Weighted Number of shares EPS 2021 1163680 2178800 643680 1569600 ( 0.41 0.53