Question
In: Accounting
Porter Corporation owns all 30,000 shares of the common stock of Street, Inc. Porter has 65,000...
Porter Corporation owns all 30,000 shares of the common stock of Street, Inc. Porter has 65,000 shares of its own common stock outstanding. During the current year, Porter earns net income (without any consideration of its investment in Street) of $197,000 while Street reports $157,000. Annual amortization of $16,000 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 $39,000 for Porter and $31,000 for Street. Porter’s bonds can be converted into 8,000 shares of common stock; Street’s bonds can be converted into 10,000 shares. Porter owns none of these bonds.
What are the earnings per share amounts that Porter should report in its current year consolidated income statement? (Round your answers to 2 decimal places.)
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Expert Solution
Calculation:
Diluted EPS of street co.
| Street earnings after amortization [157000-16000] | 141000 |
| Shares | 30000 |
| Basic EPS [141000/30000] | 4.7$ |
| Streets earning before bond interest [141000+31000$ interest saved if bond converted] | 172000 |
|
Shares after bond conversion [30000+10000 converted bonds] |
40000 |
| diluted EPS [172000/40000] | 4.3 $ |
bonds are dilutive as diluted EPS is less than basic EPS.
Porter's share in diluted EPS of street co.
| Total shares of street co after conversion | 40000 |
| Porter's shares | 30000 |
| Porter's share [30000/40000] | 75% |
| Porter's earning share in street co.[172000*75%] | 129000 |
Diluted EPS
| Porter's Income | 197000 |
| Share in street co as above step 2 | 129000 |
| Interest saved after bond conversion | 39000 |
| diluted earnings [197000+129000+39000] | 365000 |
| Porter shares | 65000 |
| Bond converted | 8000 |
| Dilute shares [65000+8000] | 73000 |
ANSWER DILUTED EPS = 365000/73000
=5 $
ekkarill92 answered 2 years agoRelated Solutions
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