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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ekkarill92 answered 1 year ago

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