Question

Sheffield 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 $1,746,000 and income from continuing operations for the fiscal year ended May 31, 2021, was $2,459,000. In both years, the company incurred a 10% interest expense on $2,370,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss from discontinued operations of $591,000 on February 2021. The company uses a 20% effective tax rate for income taxes.

The capital structure of Sheffield Corporation on June 1, 2019, consisted of 976,000 shares of common stock outstanding and 19,700 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, Sheffield sold an additional 510,000 shares of the common stock at $20 per share. Sheffield distributed a 20% stock dividend on the common shares outstanding on January 1, 2020. On December 1, 2020, Sheffield was able to sell an additional 801,000 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 Sheffield Corporation is a simple or complex capital structure

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

Weighted average number of shares (1) May 31, 2020 (2) May 31, 2021

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

Answer 1

Weighted Average number of shares
1. May 31, 2020
Particulars	Number of shares	Caculation	Weighted Avg. No.of Shares
June 1, 2019	976,000	976,000 X 12Months/12Months	976,000
Oct 1, 2019	510,000	510,000 X 8Months/12Months	340,000
Total			1,316,000
2. May 31, 2021
Particulars	Number of shares	Caculation	Weighted Avg. No.of Shares
June 1, 2020	1,486,000	1,486,000 X 12Months/12Months	1,486,000
Dec 1, 2019	801,000	801,000 X 6Months/12Months	4005,00
Total			1,886,500
Weighted Average number of shares
1. May 31, 2020	1,316,000
2. May 31, 2021	1,886,500

Sheffield Corporation
Comparative Income Statement
For Fiscal Year Ended May 31,2020 and 2021
Particulars	May 31,2020	May 31, 2021
Revenue from Operations	$1,746,000	$2,459,000
Total Revenue	$1,746,000	$2,459,000
Expenses:
Interest Expense ($2,370,000 * 10%)	$237,000	$237,000
Total Expenses	$237,000	$237,000
Income Before Tax	$1,509,000	$2,222,000
Tax Expense @ 20%	$301,800	$444,400
Income after Tax from Continuing operations	$1,207,200	$1,777,600
Income/(loss) after tax from Discontinuing operations		($472,800)
Total Income for the period	$1,207,200	$1,304,800
Earnings Per Share
EPS from Continuing operations	$0.92	$0.94
EPS from Discontinued operations	0.00	($0.25)
Total EPS	$0.92	$0.69
Calculation
Income/(Loss) after tax from Discontinuing operations
Loss from Discontinued Operations		$591,000
Less: tax Expense @ 20%		$118,200
Loss after tax		$472,800