Meng Group is preparing the comparative financial statements for the annual report to its shareholders for fiscal years ended May 31, 2022, and May 31, 2023 (yen in thousands). The income from continuing 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. In 2023, the company experienced a loss from discontinued operations, net of tax, of ¥360,000. The company uses a 40% effective tax rate for income taxes.
The capital structure of Meng Group on June 1, 2021, consisted of 1 million ordinary shares outstanding and 20,000 shares of ¥50 par value, 6%, cumulative preference shares. There were no preference dividends in arrears, and the company had not issued any convertible securities, options, or warrants.
On October 1, 2021, Meng sold an additional 500,000 ordinary shares at ¥20 per share. Meng distributed a 20% share dividend on the ordinary shares outstanding on January 1, 2022. On December 1, 2022, Meng was able to sell an additional 800,000 ordinary shares at ¥22 per share. These were the only ordinary share transactions that occurred during the 2 fiscal years.
Instructions
a. Identify whether the capital structure at Meng Group is a simple or complex capital structure, and explain why.
b. Determine the weighted-average ordinary shares that Meng Group would use in calculating earnings per share for the fiscal year ended:
1. May 31, 2022.
2. May 31, 2023.
c. Prepare, in good form, a comparative income statement, beginning with income from operations, for Meng Group for the fiscal years ended May 31, 2022, and May 31, 2023.
This statement will be included in Meng’s annual report and should display the appropriate earnings per share presentations.
