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Problem 16-6 Skysong Corporation is preparing the comparativefinancial statements for the annual report to its shareholders forfiscal years ended May 31, 2017, and May 31, 2018. The income fromoperations for the fiscal year ended May 31, 2017, was $1,775,000and income from continuing operations for the fiscal year ended May31, 2018, was $2,566,000. In both years, the company incurred a 10%interest expense on $2,446,000 of debt, an obligation that requiresinterest-only payments for 5 years. The company experienced a lossfrom discontinued operations of $617,000 on February 2018. Thecompany uses a 40% effective tax rate for income taxes. The capitalstructure of Skysong Corporation on June 1, 2016, consisted of954,000 shares of common stock outstanding and 20,100 shares of $50par value, 5%, cumulative preferred stock. There were no preferreddividends in arrears, and the company had not issued anyconvertible securities, options, or warrants. On October 1, 2016,Skysong sold an additional 490,000 shares of the common stock at$20 per share. Skysong distributed a 20% stock dividend on thecommon shares outstanding on January 1, 2017. On December 1, 2017,Skysong was able to sell an additional 794,000 shares of the commonstock at $22 per share. These were the only common stocktransactions that occurred during the two fiscal years. Identifywhether the capital structure at Skysong Corporation is a simple orcomplex capital structure. Determine the weighted-average number ofshares that Skysong Corporation would use in calculating earningsper share for the fiscal year ended: Weighted-average number ofshares (1) May 31, 2017 (2) May 31, 2018 Prepare, in good form, acomparative income statement, beginning with income fromoperations, for Skysong Corporation for the fiscal years ended May31, 2017, and May 31, 2018. This statement will be included inSkysong’s annual report and should display the appropriate earningsper share presentations. (Round earnings per share to 2 decimalplaces, e.g. $1.55.) SKYSONG CORPORATION Comparative IncomeStatement For Fiscal Years Ended May 31, 2017 and 2018 2017 2018 $$ $ $ Earnings per share: $ $ $ $ Question Attempts: 0 of 5 usedSave for later Submit Answer

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28 Sep 2019

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Problem 16-9 Headland Corporation is preparing the comparativefinancial statements to be included in the annual report tostockholders. Headland employs a fiscal year ending May 31. Incomefrom operations before income taxes for Headland was $1,420,000 and$711,000, respectively, for fiscal years ended May 31, 2018 and2017. Headland experienced a loss from discontinued operations of$415,000 on March 3, 2018. A 40% combined income tax rate pertainsto any and all of Headland Corporation’s profits, gains, andlosses. Headland’s capital structure consists of preferred stockand common stock. The company has not issued any convertiblesecurities or warrants and there are no outstanding stock options.Headland issued 39,700 shares of $100 par value, 6% cumulativepreferred stock in 2014. All of this stock is outstanding, and nopreferred dividends are in arrears. There were 1,056,000 shares of$1 par common stock outstanding on June 1, 2016. On September 1,2016, Headland sold an additional 364,800 shares of the commonstock at $16 per share. Headland distributed a 20% stock dividendon the common shares outstanding on December 1, 2017. These werethe only common stock transactions during the past 2 fiscal years.Determine the weighted-average number of common shares that wouldbe used in computing earnings per share on the current comparativeincome statement for: Weighted-average number of common shares (1)The year ended May 31, 2017. (2) The year ended May 31, 2018.Starting with income from operations before income taxes, prepare acomparative income statement for the years ended May 31, 2018 and2017. The statement will be part of Headland Corporation’s annualreport to stockholders and should include appropriate earnings pershare presentation. (Round earnings per share to 2 decimal places,e.g. $2.55.) HEADLAND CORPORATION Comparative Income Statement Forthe Years Ended May 31, 2018 and 2017 2018 2017 $ $ $ $ Earningsper share $ $ $ $ Question Attempts: 0 of 5 used Save for laterSubmit Answer

On December 31, 2015, Dow Steel Corporation had 700,000 shares of common stock and 40,000 shares of 10%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $500,000 and $79,000 to common and preferred shareholders, respectively, on December 15, 2016. On February 28, 2016, Dow sold 64,000 common shares. Also, as a part of a 2015 agreement for the acquisition of Merrill Cable Company, another 31,000 shares (already adjusted for the stock dividend) are to be issued to former Merrill shareholders on December 31, 2017, if Merrill's 2017 net income is at least $600,000. In 2016, Merrill's net income was $730,000. In keeping with its long-term share repurchase plan, 6,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2016, was $2,600,000. The income tax rate is 40%. As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows: Date Granted Options Granted Share Price (adjusted for the stock dividend) December 31, 2014 17,000 $ 26 December 31, 2015 12,000 $ 35 December 31, 2016 15,500 $ 34 The market price of the common stock averaged $34 per share during 2016. On July 12, 2014, Dow issued $800,000 of convertible 10% bonds at face value. Each $1,000 bond is convertible into 40 common shares (adjusted for the stock dividend).

Compute Dow's basic and diluted earnings per share for the year ended December 31, 2016

On December 31, 2015, Dow Steel Corporation had 770,000 shares of common stock and 47,000 shares of 9%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $570,000 and $86,000 to common and preferred shareholders, respectively, on December 15, 2016. On February 28, 2016, Dow sold 68,000 common shares. Also, as a part of a 2015 agreement for the acquisition of Merrill Cable Company, another 35,000 shares (already adjusted for the stock dividend) are to be issued to former Merrill shareholders on December 31, 2017, if Merrill's 2017 net income is at least $670,000. In 2016, Merrill's net income was $800,000. In keeping with its long-term share repurchase plan, 4,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2016, was $2,950,000. The income tax rate is 40%. As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows: Date Granted Options Granted Share Price (adjusted for the stock dividend) December 31, 2014 24,000 $ 40 December 31, 2015 19,000 $ 49 December 31, 2016 22,500 $ 48 The market price of the common stock averaged $48 per share during 2016. On July 12, 2014, Dow issued $900,000 of convertible 10% bonds at face value. Each $1,000 bond is convertible into 40 common shares (adjusted for the stock dividend). Required: Compute Dow's basic and diluted earnings per share for the year ended December 31, 2016. (Enter your answers in thousands.)

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