Problem 16-9 Flint Corporation is preparing the comparative financial statements
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Problem 16-9
Flint Corporation is preparing the comparative financial statements to be included in the annual report to stockholders. Flint employs a fiscal year ending May 31.
Income from operations before income taxes for Flint was $1,445,000 and $635,000, respectively, for fiscal years ended May 31, 2018 and 2017. Flint experienced a loss from discontinued operations of $367,000 on March 3, 2018. A 40% combined income tax rate pertains to any and all of Flint Corporation’s profits, gains, and losses.
Flint’s capital structure consists of preferred stock and common stock. The company has not issued any convertible securities or warrants and there are no outstanding stock options.
Flint issued 37,100 shares of $100 par value, 6% cumulative preferred stock in 2014. All of this stock is outstanding, and no preferred dividends are in arrears.
There were 1,003,200 shares of $1 par common stock outstanding on June 1, 2016. On September 1, 2016, Flint sold an additional 422,400 shares of the common stock at $18 per share. Flint distributed a 20% stock dividend on the common shares outstanding on December 1, 2017. These were the only common stock transactions during the past 2 fiscal years.
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FLINT CORPORATION
Comparative Income Statement
For the Years Ended May 31, 2018 and 2017
2018
2017
Earnings per share
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Problem 16-9
Flint Corporation is preparing the comparative financial statements to be included in the annual report to stockholders. Flint employs a fiscal year ending May 31.
Income from operations before income taxes for Flint was $1,445,000 and $635,000, respectively, for fiscal years ended May 31, 2018 and 2017. Flint experienced a loss from discontinued operations of $367,000 on March 3, 2018. A 40% combined income tax rate pertains to any and all of Flint Corporation’s profits, gains, and losses.
Flint’s capital structure consists of preferred stock and common stock. The company has not issued any convertible securities or warrants and there are no outstanding stock options.
Flint issued 37,100 shares of $100 par value, 6% cumulative preferred stock in 2014. All of this stock is outstanding, and no preferred dividends are in arrears.
There were 1,003,200 shares of $1 par common stock outstanding on June 1, 2016. On September 1, 2016, Flint sold an additional 422,400 shares of the common stock at $18 per share. Flint distributed a 20% stock dividend on the common shares outstanding on December 1, 2017. These were the only common stock transactions during the past 2 fiscal years.
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Determine the weighted-average number of common shares that would be used in computing earnings per share on the current comparative income statement for:Weighted-average number of common shares (1) The year ended May 31, 2017. (2) The year ended May 31, 2018.
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Starting with income from operations before income taxes, prepare a comparative income statement for the years ended May 31, 2018 and 2017. The statement will be part of Flint Corporation’s annual report to stockholders and should include appropriate earnings per share presentation. (Round earnings per share to 2 decimal places, e.g. $2.55.)FLINT CORPORATION
Comparative Income Statement
For the Years Ended May 31, 2018 and 2017
2018
2017
DividendsExpensesIncome Before Extraordinary ItemIncome From Continuing OperationsIncome From Operations Before Income TaxesIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues
$ $DividendsExpensesIncome Before Extraordinary ItemIncome From Continuing OperationsIncome From Operations Before Income TaxesIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues
DividendsExpensesIncome Before Extraordinary ItemIncome From Continuing OperationsIncome From Operations Before Income TaxesIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues
DividendsExpensesIncome Before Extraordinary ItemIncome From Continuing OperationsIncome From Operations Before Income TaxesIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues
DividendsExpensesIncome Before Extraordinary ItemIncome From Continuing OperationsIncome From Operations Before Income TaxesIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues
$ $Earnings per share
Dividends Expenses Income Before Extraordinary Item Income From Continuing Operations Income From Operations Before Income Taxes Income Taxes Loss From Discontinued Operations Net Income / (Loss) Retained Earnings, June 1 Retained Earnings, May 31 Revenues Total Expenses Total Revenues
$ $Dividends Expenses Income Before Extraordinary Item Income From Continuing Operations Income From Operations Before Income Taxes Income Taxes Loss From Discontinued Operations Net Income / (Loss) Retained Earnings, June 1 Retained Earnings, May 31 Revenues Total Expenses Total Revenues
DividendsExpensesIncome Before Extraordinary ItemIncome From Continuing OperationsIncome From Operations Before Income TaxesIncome TaxesLoss From Discontinued OperationsNet Income / (Loss)Retained Earnings, June 1Retained Earnings, May 31RevenuesTotal ExpensesTotal Revenues
$ $Warning
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Explanation / Answer
Multistep income statement for the years May 2018, and May 2017:
Date Particulars May 31,2018(1) May 31,2017(2) Number of months(3) Weighted number of shares for 2017(4)=(2)*(3) Weighted number of shares for 2018(5)=(1)*(3) 06-01-2016 common shares 1003200 12 12038400 09-01-2016 Issued common shares 422400 9 3801600 Weighted number of common shares 1320000 Common stock outstanding as on May 31,2017 1425600 1425600 12 17107200 12-01-2017 Add:Stock dividend(20%*1425600) 285120 6 1710720 Weighted number of common shares as on May 31,2018 1568160 Calculation (12038400+3801600)/12 (17107200+1710720)/12