In: Accounting
Question 29:
Knight Co. owned 80% of the common stock of Stoop Co. Stoop had
50,000 shares of $5 par value common stock and 2,000 shares of
preferred stock outstanding. Each preferred share received an
annual per share dividend of $2 and is convertible into four shares
of common stock. Knight did not own any of Stoop's preferred stock.
Stoop also had 600 bonds outstanding, each of which is convertible
into ten shares of common stock. Stoop's annual after-tax interest
expense for the bonds was $2,000. Knight did not own any of Stoop's
bonds. There are no excess amortizations or intra-entity
transactions associated with this consolidation. Stoop reported net
income of $300,000 for 2018. Knight has 100,000 shares of common
stock outstanding and reported net income of $400,000 for
2018.
What would Knight Co. report as consolidated basic earnings per
share (rounded)?
$7.00
$6.40
$5.68
$6.37
$6.00
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AS FOR GIVEN DATA..
Knight Co. owned 80% of the common stock of Stoop Co. Stoop had
50,000 shares of $5 par value common stock and 2,000 shares of
preferred stock outstanding. Each preferred share received an
annual per share dividend of $2 and is convertible into four shares
of common stock. Knight did not own any of Stoop's preferred stock.
Stoop also had 600 bonds outstanding, each of which is convertible
into ten shares of common stock. Stoop's annual after-tax interest
expense for the bonds was $2,000. Knight did not own any of Stoop's
bonds. There are no excess amortizations or intra-entity
transactions associated with this consolidation. Stoop reported net
income of $300,000 for 2018. Knight has 100,000 shares of common
stock outstanding and reported net income of $400,000 for
2018.
What would Knight Co. report as consolidated basic earnings per
share
EXPLANATION ::-
STEP 1= CALCULATION OF SHARE OF KNIGHT CO. | |||
Net income of Stoop = | 300000 | ||
Less : Preference Dividend = | 4000 | ||
(2000 pref Share X $ 2 per shares) | |||
Net income available to Equity holders = | 296000 | ||
Knight Co. share (80% X 296,000)= | $ 2,36,800.00 | ||
CALCULATION OF BASIC EARNING PER SHARES OF KNIGHT CO. | |||
Net Income of Knight Co. = | $ 4,00,000.00 | ||
Add: Share of Stoop Co. | $ 2,36,800.00 | ||
Total Earning available for Shareholder (A) | $ 6,36,800.00 | ||
No. of Shares Outstanding(B) | 100000 | ||
Basic Earning per shares = Total Earning available to Shareholders / No. of Shares = A/ B | $ 6.37 | ||
Answer = Option 1 = $ 6.37 | |||
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