Pal Corporation’s net income for 2011 is $316,000, including $160,000 income from Sod Corporation, its 80 percentowned subsidiary. The income from Sod consists of $176,000 equity in income less $16,000 patent amortization. Pal has 300,000 shares of $10 par common stock outstanding, and Sod has 50,000 shares of $10 par common stock outstanding throughout 2011. In addition, Sod has 10,000 outstanding warrants to acquire 10,000 shares of Sod common stock at $10 per share. The average market price of Sod’s common stock was $20 per share during 2011.
1. For purposes of calculating Pal Corporation’s (and consolidated) diluted earnings per share, Sod’s diluted earnings are:
(a) $220,000
(b) $200,000
(c) $176,000
(d) $160,000
2. For purposes of calculating Pal Corporation’s (and consolidated) diluted earnings per share, Sod’s outstanding common shares and common share equivalents are:
(a) 60,000 shares
(b) 56,000 shares
(c) 55,000 shares
(d) 50,000 shares
3. For purposes of calculating Pal Corporation’s (and consolidated) earnings per share, assume that Sod’s diluted EPS is $4 per share. Pal Corporation’s (and consolidated) diluted earnings will be:
(a) $316,000
(b) $300,000
(c) $156,000
(d) $140,000
4. If Sod’s diluted earnings for 2011 are $4 per share, Pal Corporation’s (and consolidated) diluted earnings per share will be:
(a) $1.64
(b) $1.59
(c) $1.04
(d) $1.00