(Basic EPS: Two-Year Presentation) Melton Corporation is preparing the comparative financial statements for the annual report to...


(Basic EPS: Two-Year Presentation) Melton Corporation is preparing the comparative financial statements for the annual report to its shareholders for fiscal years ended May 31, 2010, and May 31, 2011. The income from operations for each year was $1,800,000 and $2,500,000, respectively. In both years, the company incurred a 10% interest expense on $2,400,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss of $600,000 from a fire in its Scots land facility in February 2011, 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, 2009, consisted of 1 million shares of common stock outstanding and 20,000 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, 2009, Melton sold an additional 500,000 shares of the common stock at $20 per share. Melton distributed a 20% stock dividend on the common shares outstanding on January 1, 2010. On December 1, 2010, Melton was able to sell an additional 800,000 shares of the common stock at $22 per share. These were the only common stock transactions that occurred during the two fiscal years.

(a) Identify whether the capital structure at Melton Corporation is a simple or complex capital structure, and explain why.

(b) Determine the weighted-average number of shares that Melton Corporation would use in calculating earnings per share for the fiscal year ended

(1) May 31, 2010.

(2) May 31, 2011.

(c) Prepare, in good form, a comparative income statement, beginning with income from operations, for Melton Corporation for the fiscal years ended May 31, 2010, and May 31, 2011. This statement will be included in Melton’s annual report and should display the appropriate earnings per share presentations.

(CMA adapted)

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Intermediate Accounting

ISBN: 978-0470423684

13th Edition

Authors: Donald E. Kieso, Jerry J. Weygandt, And Terry D. Warfield

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