Question

Loretta corporation a publicly traded company is preparing the comparative financial statements to be included in the annual report to shareholders. Lorettas fiscal year ends may 31. Following information: 1. Income from operations before income tax for Loretta was 800,000 and 1.2 million respectively for the fiscal year ended may 31 2018 and 2017 2. Loretta experienced a loss from discontinued operations of 100,000 from a business segment disposed of on march 3 2018 3. A 20% combined income tax rate applied to all Lorettas corporation profit, gains and losses 4. Lorettas capital structure consists of preferred shares and common shares. The company has not yet issue any convertible securities or warrants and theres no outstanding stock options 5. Lorettas issued 200,000 of 10$ per value 5% cumulative proffered shares in 2010. All of these shares are outstanding and no preferred dividends are arrears. 6. There were 1 million common shares outstanding Junes 1 2016. ON September 1 2016, Loretta sold an additional 500,000 common shares a 20$ per share. Loretta distributed a 20% dividends on the common shares outstanding on December 1 2017

Required:

B) Starting with income from operations before income tax, prepare a comparative income statement for the years ended may 31 2018 and 2017. Assumed they disclose all applicable earnings per share data on the face of the income statement.

Answer 1

( Amount in $)

PARTICULARS	2017	2018
Income from operations	1,200,000	800,000
(less) Loss from discontinued operations		(100,000)
		700,000
(less) Income tax	(240,000) [(1,200,000*20)/100]	(140,000) [700,000*20/100]
Income after tax	960,000	560,000
(less) preference dividend	(100,000) [(200,000*10)*5%]	(100,000) [(200,000*10)*5%]
Income available for equity holders	860,000	460,000
(less) Equity dividend	0	(300,000) [{(1,000,000+500,000)*20%*1**]
	860,000	160,000

^** Assumed face value of share as $1