E 10-11

[EPS] Subsidiary EPS and consolidated EPS with goodwill and warrants Pow Corporation owns an 80 percent interest in Soy Corporation. Pow does not have common stock equivalents or other potentially dilutive securities outstanding, so it calculated its EPS for 2016 as follows:

$1,000,000 separate income + $480,000 Income from Soy 1,000,000 outstanding common shares of Pow

= $1.48 An examination of Pow’s income from Soy shows that it is determined correctly as 80 percent of Soy’s $630,000 net income less $24,000 patent amortization. Pow’s EPS computation is in error, however, because it fails to consider outstanding warrants of Soy that permit their holders to acquire 10,000 shares of Soy common stock at $24 per share and increase Soy’s outstanding common stock to 60,000 shares. The average price of Soy common stock during 2016 was $40.

REQuIRED 1. Compute Soy Corporation’s diluted EPS for use in determining consolidated EPS.

2. Compute consolidated EPS for 2016 (both basic and diluted).