Melton Corporation is preparing the comparative financial statements for the ann
ID: 2446651 • Letter: M
Question
Melton Corporation is preparing the comparative financial statements for the annual report to its shareholders for fiscal years ended May 31, 2014, and May 31, 2015. The income from operations for each year was $1,906,000 and $2,513,000, respectively. In both years, the company incurred a 12% interest expense on $2,411,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss of $696,100 from a fire in its Scotsland facility in February 2015, which was determined to be an extraordinary loss. The company uses a 40% effective tax rate for income taxes. The capital structure of Melton Corporation on June 1, 2013, consisted of 1,047,600 shares of common stock outstanding and 30,800 shares of $53 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, 2013, Melton sold an additional 505,200 shares of the common stock at $20 per share. Melton distributed a 20% stock dividend on the common shares outstanding on January 1, 2014. On December 1, 2014, Melton was able to sell an additional 760,800 shares of the common stock at $22 per share. These were the only common stock transactions that occurred during the two fiscal years. Determine the weighted-average number of shares that Melton Corporation would use in calculating earnings per share for the fiscal year ended:
Explanation / Answer
Answer:
Common stock on june 1,2013 = 1,047,600
October 1, 2013 issue = 505,200
Stock dividend 20% on common shares outstanding on January 1, 2014. For the purpose of weighted avergae no of share calculations, It is considered as having been issued at beginning of the period or the date fresh shares issued which even it relates to.
So
This will be done by multiplying the number of shares prior to declaring dividends by 1.2 (20% dividend).
June 1,2013 1,047,600*1.2 = 1,257,120
Oct 1,2013 505,200*1.2 = 606,240
No of shares issued on december 1, 2014 is 760,800 shares.
No of shares outstanding from June, 2014 till May 31st 2015 = 1257120+606,240 = 1,863,360
Additional No of shares outstanding from Dec 1, 2014 till May 31st 2015 = 760,800
Weighted Average number of shares outstanding on 31st May 2014 Shares outstanding Fracton of month outstanding Equivalent shares outstanding June 13 - May 13 1257120 12/12" 1257120 Oct 13 - May 13 606240 8/12' 404160 1661280