Problem 16-6 Stellar Corporation is preparing the comparative financial statements for the annual report to its shareholders for fiscal years ended May 31, 2017, and May 31, 2018. The income from operations for the fiscal year ended May 31, 2017, was $1,791,000 and income from continuing operations for the fiscal year ended May 31, 2018, was $2,378,000. In both years, the company incurred a 10% interest expense on $2,345,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss from discontinued operations of $594,000 on February 2018. The company uses a 40% effective tax rate for income taxes. The capital structure of Stellar Corporation on June 1, 2016, consisted of 973,000 shares of common stock outstanding and 19,800 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, 2016, Stellar sold an additional 494,000 shares of the common stock at $20 per share. Stellar distributed a 20% stock dividend on the common shares outstanding on January 1, 2017. On December 1, 2017, Stellar was able to sell an additional 805,000 shares of the common stock at $22 per share. These were the only common stock transactions that occurred during the two fiscal years. Identify whether the capital structure at Stellar Corporation is a simple or complex capital structure.

Determine the weighted average number of shares that Stellar Corporation would use in calculating earnings per share for the fiscal year ended: Weighted-average number of shares (1) May 31, 2017 (2) May 31, 2018 STELLAR CORPORATION Comparative Income Statement For Fiscal Years Ended May 31, 2017 and 2018 2017 2018 Earnings per share: Determine the weighted average number of shares that Stellar Corporation would use in calculating earnings per share for the fiscal year ended: Weighted-average number of shares (1) May 31, 2017 (2) May 31, 2018 STELLAR CORPORATION Comparative Income Statement For Fiscal Years Ended May 31, 2017 and 2018 2017 2018 Earnings per share