Question

Problem 16-06 (Part Level Submission) Ivanhoe 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 $1,878,000 and income from continuing operations for the fiscal year ended May 31, 2021, was $2,526,000. In both years, the company incurred a 11% interest expense on $2,426,000 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 Ivanhoe Corporation on June 1, 2019, consisted of 1,041,000 shares of common stock outstanding and 19,500 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, Ivanhoe sold an additional 487,000 shares of the common stock at $20 per share. Ivanhoe distributed a 20% stock dividend on the common shares outstanding on January 1, 2020. On December 1, 2020, Ivanhoe was able to sell an additional 791,000 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 Ivanhoe Corporation is a simple or complex capital structure. Simple Capital Structure Attempts: 2 of 5 used *(b) Your answer is partially correct. Try again. Determine the weighted average number of shares that Ivanhoe Corporation would use in calculating earnings per share for the fiscal vear ended! Weighted average number of shares (1) May 31, 2020 1638800 (2) May 31, 2021 11923500 Attempts: 5 of 5 used 4:17 PM

please show work

Answer 1

Part B

	weighted average outstanding shares
May 31, 2020	1638800
May 31, 2021	2229100

Event	Dates outstanding	Shares outstanding	Restatement	Fraction of year	Weighted shares
Beginning balance	June 1–Oct. 1	1041000	1.20	4/12	416400
New Issue	Oct. 1–May 31	1528000	1.20	8/12	1222400
					1638800

1041000+487000 =1528000

Event	Dates outstanding	Shares outstanding	Restatement	Fraction of year	Weighted shares
Beginning balance	June 1–Dec. 1	1833600		6/12	916800
New Issue	Dec. 1–May 31	2624600		6/12	1312300
					2229100

1528000*1.20 = 1833600

1833600+791000 = 2624600

Part C

IVANHOE CORPORATION Comparative Income Statement For Fiscal Years Ended May 31, 2020 and 2021
	2020	2021
Income from operations	1878000	2526000
Interest expense	266860	266860
Income before taxes	1611140	2259140
Income taxes (40%)	322228	451828
Income before extraordinary item	1288912	1807312
Extraordinary loss, net of income taxes		496000
Net income	1288912	1311312
Earnings per share:
Income before extraordinary loss	0.75	0.78
Extraordinary loss		- 0.23
Net income	0.75	0.55

2426000*11% = 266860

620000*(1-20%) = 496000

Preferred dividend = 19500*50*6% = 58500

EPS 2020 = (1288912-58500)/1638800 = 0.75

EPS 2021 = (1807312-58500)/2229100 = 0.78

Extraordinary loss = 496000/2229100 = 0.23