Question
In: Accounting
The following separate income statements are for Burks Company and its 80 percent–owned subsidiary, Foreman Company:...
The following separate income statements are for Burks Company and its 80 percent–owned subsidiary, Foreman Company:
| Burks | Foreman | |||||||
| Revenues | $ | (400,000 | ) | $ | (328,000 | ) | ||
| Expenses | 220,000 | 239,000 | ||||||
| Gain on sale of equipment | 0 | (29,000 | ) | |||||
| Equity earnings of subsidiary | (66,000 | ) | 0 | |||||
| Net income | $ | (246,000 | ) | $ | (118,000 | ) | ||
| Outstanding common shares | 70,000 | 36,000 | ||||||
Additional Information
- Amortization expense resulting from Foreman’s excess acquisition-date fair value is $34,000 per year.
- Burks has convertible preferred stock outstanding. Each of these 8,000 shares is paid a dividend of $5 per year. Each share can be converted into five shares of common stock.
- Stock warrants to buy 16,000 shares of Foreman are also outstanding. For $15, each warrant can be converted into a share of Foreman’s common stock. The fair value of this stock is $20 throughout the year. Burks owns none of these warrants.
- Foreman has convertible bonds payable that paid interest of $44,000 (after taxes) during the year. These bonds can be exchanged for 25,000 shares of common stock. Burks holds 20 percent of these bonds, which it bought at book value directly from Foreman.
Compute basic and diluted EPS for Burks Company. (Round your intermediate percentage value and final answer to 2 decimal places.)
Solutions
Expert Solution
| Compute basic and diluted EPS for Burks Company. | |
| Basic EPS—Parent Company (Burks) | |
| Reported net income (separate)—Burks ($400,000 - 220,000) | $180,000 |
| Foreman net income: 80% × ($118,000 – $34,000 amortization.) | $67,200 |
| Preferred stock dividends (8,000 × $5) | ($40,000) |
| Burks’ earnings applicable to basic EPS | $207,200 |
| Burks' outstanding shares | 70,000 |
| Basic earnings per share ($207200 ÷ 70,000) | $2.96 |
| Earnings applicable to Burks’ diluted EPS: | |
| Reported net income (separate)—Burks ($400,000 - 220,000) | $180,000 |
| Burks’ share of Foreman income (Calculated Below) | $75,600 |
| Preferred stock dividends (assumed conversion) | $0.00 |
| Earnings applicable to diluted EPS | $255,600 |
| Burks' outstanding shares | 70,000 |
| Conversion of preferred stock into Common Stock (8,000 × 5) | 40,000 |
| Shares applicable to diluted EPS | 110,000 |
| Diluted earnings per share ($255600 ÷ 110,000) | $2.32 |
| Burks’ share of Foreman income | |
| Subsidiary income for Burks’ EPS: | |
| Net income after amortization ($118,000 – 34,000) | $84,000 |
| Portion owned by parent (28800 ÷ 32,000) (calculated below) | 90.00% |
| Subsidiary income applicable to parent—diluted EPS | $75,600 |
| Shares outstanding | 36000 |
| Assumed conversion of warrants | 8000 |
| Assumed acquisition of treasury stock with proceeds of conversion [(16,000 × $15) ÷ $20] | -12000 |
| Shares applicable to diluted EPS | 32,000 |
| Shares controlled by parent (36,000 x 80%) | 28800 |
ekkarill92 answered 1 year agoRelated Solutions
The following separate income statements are for Burks Company and its 80 percent–owned subsidiary, Foreman Company:
The following separate income statements are for Burks Company
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converted into four shares of common stock.Stock warrants to buy 14,000 shares of Foreman are also
outstanding. For $10,...
The following separate income statements are for Burks Company and its 80 percent–owned subsidiary, Foreman Company:...
The following separate income statements are for Burks Company
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Foreman
Revenues
$
(420,000
)
$
(320,000
)
Expenses
344,000
235,000
Gain on sale of equipment
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Net income
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$
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Burks has convertible preferred stock outstanding. Each of these...
The following separate income statements are for Burks Company and its 80 percent–owned subsidiary, Foreman Company:...
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The following separate income statements are for Burks Company and its 80 percent–owned subsidiary, Foreman Company:...
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Revenues
$
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$
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244,000
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