Question
In: Accounting
Porter Corporation owns all 30,000 shares of the common stock of Street, Inc. Porter has 70,000...
Porter Corporation owns all 30,000 shares of the common stock of Street, Inc. Porter has 70,000 shares of its own common stock outstanding. During the current year, Porter earns net income (without any consideration of its investment in Street) of $243,000 while Street reports $170,000. Annual amortization of $14,000 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 $44,000 for Porter and $36,000 for Street. Porter’s bonds can be converted into 7,000 shares of common stock; Street’s bonds can be converted into 10,000 shares. Porter owns none of these bonds.
What are the earnings per share amounts that Porter should report in its current year consolidated income statement?
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Expert Solution
Earning per share
Baisc = 5.7
Diluted = 5.6
Explanation:
Basic EPS :
| Porter's reported income | 243000 |
| Street's reported income | 170000 |
| Amotization expense | (14000) |
| Consolidated net income(all to porter) | 399000 |
| Porter shares outstanding | 70000 |
| Basic EPS(399000/70000) | 5.7 |
Diluted EPS - STREET COMPANY
| Street earning after amortization | 156000 |
| Shares outstanding | 30000 |
| Basic EPS (156000/30000) | 5.2 |
| Streets earning assuming conversion of bond(156000+36000 interest saved net of tax) | 192000 |
| Streets share assuming its conversion of bonds(30000+10000) | 40000 |
| Diluted EPS(192000/40000) | 4.8 |
Because diluted earnings per share is less than basic earnings per share, the convertible bonds are dilutive and should be included
Porter's share of street's diluted earning:
| Total share assuming street bond conversion | 40000 |
| Shares owned by porter | 30000 |
| Porter's ownership percentage | 75% |
| Street's earning for diluted EPS( above) | 192000 |
| Porters ownership.percentage | 75% |
| Earning attributed to.porters company | 144000 |
Porter's earning and share for diluted EPS:
| Porters seperate income | 243000 |
| Streets income attributable to porter(above) | 144000 |
| Interest saved(net of tax) on assumed conversion of porters bond | 44000 |
| Diluted earning to porter | 431000 |
| Porters shares outstanding | 70000 |
| Additional shares from assumed bond conversion | 7000 |
| Diluted shares | 77000 |
| Diluted EPS (431000/77000) | 5.6 |
Consolidated income statement EPS amounts for Porter Company:
Basic earnings per share (above) = $5.7
Diluted earnings per share ($431,000 ÷ 77,000) = 5.6
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RATING
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