Question

In: Accounting

Primus, Inc., owns all outstanding stock of Sonston, Inc. For the current year, Primus reports net...

Primus, Inc., owns all outstanding stock of Sonston, Inc. For the current year, Primus reports net income (exclusive of any investment income) of $632,000. Primus has 100,000 shares of common stock outstanding. Sonston reports net income of $232,000 for the period with 50,000 shares of common stock outstanding. Sonston also has 10,000 stock warrants outstanding that allow the holder to acquire shares at $13.50 per share. The value of this stock was $27 per share throughout the year. Primus owns 4,900 of these warrants.

What amount should Primus report for diluted earnings per share?

Solutions

Expert Solution

PRIMUS INC OWNS ALL OUTSTANDING STOCK OF SONSTON INC

PRIMUS NET INCOME -$632,000

PRIMUS HAS COMMON STOCK OUTSTANDING - 100,000 SHARES

SONSTON

NET INCOME-$232000

COMMON STOCK OUTSTANDING - 50000 SHARES

CALCULATION OF DILUTED EARNING PER SHARE

PARTICULAR	AMOUNT
NET INOME P	$632,000
ADD- INCOME FROM S	216,966.4
EARNING PER SHARE (A)	848,966.4
OUTSTANDING COMMON SHARES(B)	100,000
DILUTED EPS (A/B)(848,966.4 /100,000)	$8.48

THEREFORE P'S REPORT FOR DILUTED EPS IS $8.48

WORKING NOTES -

CALCULATION NUMBER OF SHARES FOR CONVERSION -

TOTAL SAHRE FOR WARRANTS = STOCK WARRANTS OUSTANDING * ACQUIRED SHARES PRICE / FAIR VALUE OF SHARES

=10,000*13.50/20 =6750 SHARES

CALCULATION PERCENTAGE OF WARRANT OWNED BY P

P PERCENTAGE OF WARRANTS = NUMBER OF WARRANTS OF P / TOTAL NUMBER OF WARRANT

=4,900/10000 =49%

CALCULATE TOTAL SHARES HOLD BY S AFTER CONVERSION

PARTICULAR	SHARES
SHARES OUSTANDING	50000
ADD-ASSURED CONVERSION OF STOCK WARRANTS	10000
LESS REPURCHASED TRESURY STOCK (10,000-6750)	(3250)
TOTAL NUMBER OF SHARES FOR DILUTED EARNING	56750

CALCULATE SHARES HOLD BY P AFTER CONVERSION

SHARES OUTSTANDING + P SHARES FOR WARRANT = 50,000 +(6750 *49%) =53,307.5

CALCULATE PERCENTAGE P'S OWNERSHIP IN S AS SHOWN BELOW

PERCENTAGE OF P'S HOLDING IN S= TOTAL SHARES HELD NY P / TOTAL SHARES OUTSTANDING OF S

=53075/56750 =93.52%

CALCULATE AMOUNT OF P'S OWNERSHIP SHARES IN S NET INCOME

=P'S SHARE FROM S NET INCOME = S NET INCOME * PERCENTAGE OF P'S HOLDING IN S

=232000*93.52% =216,966.4

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Primus, Inc., owns all outstanding stock of Sonston, Inc. For the current year, Primus reports net...

Primus, Inc., owns all outstanding stock of Sonston, Inc. For the current year, Primus reports net income (exclusive of any investment income) of $528,000. Primus has 50,000 shares of common stock outstanding. Sonston reports net income of $128,000 for the period with 40,000 shares of common stock outstanding. Sonston also has 5,000 stock warrants outstanding that allow the holder to acquire shares at $14.00 per share. The value of this stock was $28 per share throughout the year. Primus owns...

Primus, Inc., owns all outstanding stock of Sonston, Inc. For the current year, Primus reports net...

Primus, Inc., owns all outstanding stock of Sonston, Inc. For the current year, Primus reports net income (exclusive of any investment income) of $608,000. Primus has 50,000 shares of common stock outstanding. Sonston reports net income of $208,000 for the period with 40,000 shares of common stock outstanding. Sonston also has 5,000 stock warrants outstanding that allow the holder to acquire shares at $7.50 per share. The value of this stock was $15 per share throughout the year. Primus owns...

Primus, Inc., owns all outstanding stock of Sonston, Inc. For the current year, Primus reports net...

Primus, Inc., owns all outstanding stock of Sonston, Inc. For the current year, Primus reports net income (exclusive of any investment income) of $576,000. Primus has 100,000 shares of common stock outstanding. Sonston reports net income of $176,000 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...

Bravo, Inc., owns all of the stock of Echo, Inc. For 2021, Bravo reports income (exclusive...

Bravo, Inc., owns all of the stock of Echo, Inc. For 2021, Bravo reports income (exclusive of any investment income) of $480,000. Bravo has 80,000 shares of common stock outstanding. It also has 5,000 shares of preferred stock outstanding that pay a dividend of $15,000 per year. Echo reports net income of $290,000 for the period with 80,000 shares of common stock outstanding. Echo also has a liability from its 10,000, $100 bonds that pay annual interest of $8 per...

Garfun, Inc., owns all of the stock of Simon, Inc. For 2018, Garfun reports income (exclusive...

Garfun, Inc., owns all of the stock of Simon, Inc. For 2018, Garfun reports income (exclusive of any investment income) of $480,000. Garfun has 80,000 shares of common stock outstanding. It also has 5,000 shares of preferred stock outstanding that pay a dividend of $15,000 per year. Simon reports net income of $290,000 for the period with 80,000 shares of common stock outstanding. Simon also has a liability for 10,000 of $100 bonds that pay annual interest of $8 per...

fireball corporation is an s corporation, Leya owns all of the stock. During the current year....

fireball corporation is an s corporation, Leya owns all of the stock. During the current year. fireball earned a taxable income of 500000 and paid a 300000 distribution to Leyla. which of the following statement is correct a) fireball will pay corporate income tax in its earnings, and leyla will pay individual income tax on the distribution. b) only fireball will pay taxes, but leyla will not pay and taxes due to her holding in fireball C) fireball will not...

Kyle, Inc., owns 75 percent of CRT Company. During the current year, CRT reported net income...

Kyle, Inc., owns 75 percent of CRT Company. During the current year, CRT reported net income of $400,000 but paid a total cash dividend of only $56,000. What deferred income tax liability must be recognized in the consolidated balance sheet? Assume the tax rate is 21 percent. Multiple Choice $22,803. $26,043. $18,963. $42,003.

Matthew, Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability...

Matthew, Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee’s operations and decision making. On January 1, 2018, the balance in the Investment in Lindman account is $336,000. Amortization associated with this acquisition is $17,100 per year. In 2018, Lindman earns an income of $126,000 and declares cash dividends of $31,500. Previously, in 2017, Lindman had sold inventory costing $31,800 to Matthew for $53,000. Matthew consumed all but 25...

Matthew, Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability...

Matthew, Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee’s operations and decision making. On January 1, 2018, the balance in the Investment in Lindman account is $398,000. Amortization associated with this acquisition is $17,700 per year. In 2018, Lindman earns an income of $206,000 and declares cash dividends of $51,500. Previously, in 2017, Lindman had sold inventory costing $32,900 to Matthew for $47,000. Matthew consumed all but 20...

Matthew, Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability...

Matthew, Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee’s operations and decision making. On January 1, 2018, the balance in the Investment in Lindman account is $341,000. Amortization associated with this acquisition is $17,400 per year. In 2018, Lindman earns an income of $159,000 and declares cash dividends of $53,000. Previously, in 2017, Lindman had sold inventory costing $47,200 to Matthew for $59,000. Matthew consumed all but 25...

Subjects