Textbook Problem

Anoka Company reported the following selected items in the shareholders’ equity section of its balance sheet on December 31, 2019, and 2020:

In addition, it listed the following selected pretax items as a December 31, 2019 and 2020:

The preferred shares were outstanding during all of 2019 and 2020; annual dividends were declared and paid in each year. During 2019, 2,000 common shares were sold for cash on October 4. During 2020, a 20% stock dividend was declared and issued in early May. At the end of 2019 and 2020, the common stock was selling for $25.75 and $32.20, respectively. The company is subject to a 30% income tax rate.

Required:

1. 1. Prepare the comparative 2019 and 2020 income statements (multiple-step), and the related note that would appear in Anoka’s 2020 annual report.
2. 2. Next Level Compute the price/earnings ratio for 2020. How does this compare to 2019? Why is it different?