Question

Sarasota 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 $1,791,000 and income from continuing operations for the fiscal year ended May 31, 2021, was $2,378,000. In both years, the company incurred a 10% interest expense on $2,345,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss from discontinued operations of $594,000 on February 2021. The company uses a 20% effective tax rate for income taxes.

The capital structure of Sarasota Corporation on June 1, 2019, consisted of 973,000 shares of common stock outstanding and 19,800 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, Sarasota sold an additional 494,000 shares of the common stock at $20 per share. Sarasota distributed a 20% stock dividend on the common shares outstanding on January 1, 2020. On December 1, 2020, Sarasota was able to sell an additional 805,000 shares of the common stock at $22 per share. These were the only common stock transactions that occurred during the two fiscal years.

A.Identify whether the capital structure at Sarasota Corporation is a simple or complex capital structure

b.Determine the weighted-average number of shares that Sarasota Corporation would use in calculating earnings per share for the fiscal year ended:

1. May 31, 2020

2. May 31, 2021

c. Prepare, in good form, a comparative income statement, beginning with income from operations, for Melton Corporation for the fiscal years ended May 31, 2020, and May 31, 2021. This statement will be included in Melton's annual report and should display the appropriate earnings per share presentations.

Answer 1

A. The Capital Structure of Sarasota Corp. is a Complex Capital Structure. Complex Capital Structure includes  preferred stock or several classifications of common stock having different voting rights. In the present Case, the Sarasota Corp., have issued Common Stock and Preferred Stock. Therefore it is Complex Cpaital Structure.

B. Weighted Average Number of Shares.

May 31,2020

Date	Number of Shares	Claculation	Weighted Average number of Shares
June 1,2019	973,000	973,000*12/12	973,000
Oct 1,2019	494,000	494,000*8/12	329,333
JAN 1,2020	(973,000+329,333)*20% = 260,467	260467*4/12	86,822
Total	1,727,467		1,389,155

Weighted Average number of shares - 1,389,155 Shares

May 31,2021

Date	Number of Shares	Claculation	Weighted Average number of Shares
June 1,2020	1,727,467	1,727,467*12/12	1,727,467
Dec1,2020	805,000	805,000 * 6/12	402,500
Total	2,532,467		2,129,967

Weighted Average number of shares - 2,129,967 Shares

C.

Sarasota Corporation
Statement of Income
For the Year Ended May 31,2020 and May 31,2021
Particulars	May 31,2020	May 31,2021
Income from Operations	$1,791,000	$2,378,000
Total revenue	$1,791,000	$2,378,000
Expenses
Interest Expense	$234,500	$234,500
(2345000*10%)
Total Expenses	$234,500	$234,500
Profit before Tax	$1,556,500	$2,143,500
less: Income Tax @ 20%	$311,300	$428,700
Profit after tax from Continuing operation	$1,245,200	$1,714,800
Profit after tax from Discontinuing Operations		($475,200)
Total Profit for the period	$1,245,200	$1,239,600
Earnings per Share
EPS from Continuing operations	$0.90	$0.81
EPS from Discontinuing operations	0.00	($0.22)
EPS	$0.90	$0.58
Calculation
Profit after tax from Discontinuing Operations
Loss from Discontinuing operations		$594,000
Less: tax expense @20%		$118,800
Loss after Tax		$475,200