Question
Porter Corporation owns all 34,000 shares of the common stock of Street, Inc. Porter has 73,000 shares of its own common stock outstanding. During the
Porter Corporation owns all 34,000 shares of the common stock of Street, Inc. Porter has 73,000 shares of its own common stock outstanding. During the current year, Porter earns net income (without any consideration of its investment in Street) of $251,000 while Street reports $206,000. Annual amortization of $19,000 is recognized each year on the consolidation worksheet based on acquisition-date fair-value allocations. Both companies have convertible bonds outstanding. During the current year, bond-related interest expense (net of taxes) is $30,000 for Porter and $21,000 for Street. Porters bonds can be converted into 5,000 shares of common stock; Streets bonds can be converted into 6,000 shares. Porter owns none of these bonds.
A) What is the diluted earnings pershare in its current year consolidated income statement?
Primus, Inc., owns all outstanding stock of Sonston, Inc. For the current year, Primus reports net income (exclusive of any investment income) of $640,000. Primus has 50,000 shares of common stock outstanding. Sonston reports net income of $240,000 for the period with 40,000 shares of common stock outstanding. Sonston also has 10,000 stock warrants outstanding that allow the holder to acquire shares at $12.00 per share. The value of this stock was $24 per share throughout the year. Primus owns 4,500 of these warrants.
B) What is the diluted earnings per share?
Following are separate income statements for Austin, Inc., and its 80 percent owned subsidiary, Rio Grande Corporation as well as a consolidated statement for the business combination as a whole.
Austin | Rio Grande | Consolidated | ||||||||||
Revenues | $ | (712,000 | ) | $ | (508,000 | ) | $ | (1,220,000 | ) | |||
Cost of goods sold | 404,000 | 304,000 | 708,000 | |||||||||
Operating expenses | 106,000 | 74,000 | 199,000 | |||||||||
Equity in earnings of Rio Grande | (88,000 | ) | ||||||||||
Individual company net income | $ | (290,000 | ) | $ | (130,000 | ) | ||||||
Consolidated net income | $ | (313,000 | ) | |||||||||
Noncontrolling interest in consolidated net income | (23,000 | ) | ||||||||||
Consolidated net income attributable to Austin | $ | (290,000 | ) | |||||||||
Additional Information
Annual excess fair over book value amortization of $29,000 resulted from the acquisition.
The parent applies the equity method to this investment.
Austin has 60,000 shares of common stock and 8,000 shares of preferred stock outstanding. Owners of the preferred stock are paid an annual dividend of $50,000, and each share can be exchanged for five shares of common stock.
Rio Grande has 39,000 shares of common stock outstanding. The company also has 12,000 stock warrants outstanding. For $10, each warrant can be converted into a share of Rio Grandes common stock. Austin holds half of these warrants. The price of Rio Grandes common stock was $20 per share throughout the year.
Rio Grande also has convertible bonds, none of which Austin owned. During the current year, total interest expense (net of taxes) was $26,000. These bonds can be exchanged for 12,000 shares of the subsidiarys common stock.
C) Determine Austins basic and diluted EPS
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