Reference no: EM132661243

Question - Cullumber Corporation is preparing the comparative financial statements for the annual report to its shareholders for fiscal years ended May 31, 2020, and May 31, 2021. The income from operations for the fiscal year ended May 31, 2020, was $1,755,000 and income from continuing operations for the fiscal year ended May 31, 2021, was $2,604,000. In both years, the company incurred a 10% interest expense on $2,412,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss from discontinued operations of $619,000 on February 2021. The company uses a 20% effective tax rate for income taxes.

The capital structure of Cullumber Corporation on June 1, 2019, consisted of 984,000 shares of common stock outstanding and 19,000 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, 2019, Cullumber sold an additional 486,000 shares of the common stock at $20 per share. Cullumber distributed a 20% stock dividend on the common shares outstanding on January 1, 2020. On December 1, 2020, Cullumber 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.

Required -

(a) Identify whether the capital structure at Cullumber Corporation is a simple or complex capital structure.

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

Weighted-average number of shares

(1) May 31, 2020

(2) May 31, 2021