Question - Agassi Corporation is preparing the comparative financial statement to be included in the annual report to stockholders. Agassi employs a fiscal year ending May 31.

Income from operations before income taxes for Agassi was $1,400,000 and $660,000, respectively, for fiscal years ended May 31, 2011 and 2010. Agassi experienced and extraordinary loss of $400,000 because of an earthquake on March 31, 2011. A 40% combined income tax rate pertains to any and all of Agassi Corporation's profits, gains, and losses.

Agassi'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.

Agassi issued 40,000 shares of $100 par value, 6% cumulative preferred stock in 2007. All of the stock is outstanding, and no preferred dividends are in arrears.

There were 1,000,000 shares of $1 par common stock outstanding on June 1, 2009. On September 1, 2009, Agassi sold an additional 400,000 shares of the common stock at $17 per share. Agassi distributed a 20% stock dividend on the common shares outstanding on December 1, 2010. There were the only common stock transactions during the past 2 fiscal years.

Instructions -

(a) Determine the weighted-average number of common shares that would be used in computing earnings per share on the current comparative income statement for:

(1) The year ended May 31, 2010

(2) The year ended May 31, 2011

(b) Starting with income from operations before income taxes, prepare a comparative income statement for the years ended May 31, 2011 and 2010. The statement will be part of Agassi Corporation's annual report to stockholders and should include appropriate earnings per share presentation.