Question
In: Accounting
Following are separate income statements for Austin, Inc., and its 80 percent–owned subsidiary, Rio Grande Corporation...
Following are separate income statements for Austin, Inc., and its 80 percent–owned subsidiary, Rio Grande Corporation as well as a consolidated statement for the business combination as a whole (credit balances indicated by parentheses).
| Austin | Rio Grande | Consolidated | |||||||||
| Revenues | $ | (738,000 | ) | $ | (538,000 | ) | $ | (1,276,000 | ) | ||
| Cost of goods sold | 438,000 | 262,000 | 700,000 | ||||||||
| Operating expenses | 138,000 | 108,000 | 271,000 | ||||||||
| Equity in earnings of Rio Grande | (114,400 | ) | |||||||||
| Individual company net income | $ | (276,400 | ) | $ | (168,000 | ) | |||||
| Consolidated net income | $ | (305,000 | ) | ||||||||
| Noncontrolling interest in consolidated net income | (28,600 | ) | |||||||||
| Consolidated net income attributable to Austin | $ | (276,400 | ) | ||||||||
Additional Information
- Annual excess fair over book value amortization of $25,000 resulted from the acquisition.
- The parent applies the equity method to this investment.
- Austin has 65,000 shares of common stock and 10,000 shares of preferred stock outstanding. Owners of the preferred stock are paid an annual dividend of $50,000, and each share can be exchanged for four shares of common stock.
- Rio Grande has 40,000 shares of common stock outstanding. The company also has 10,000 stock warrants outstanding. For $10, each warrant can be converted into a share of Rio Grande’s common stock. Austin holds half of these warrants. The price of Rio Grande’s common stock was $20 per share throughout the year.
- Rio Grande also has convertible bonds, none of which Austin owned. During the current year, total interest expense (net of taxes) was $41,000. These bonds can be exchanged for 25,000 shares of the subsidiary’s common stock.
Determine Austin’s basic and diluted EPS. (Round your intermediate percentage value to 1 decimal place. Round your final answers to 2 decimal places.)
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Expert Solution
Answer:
Basic earnings per share :
Austin net income = $276400
Austin preferred -stock dividends = $50000
Applicable earnings to Austin earnings per share = $276400-$50000 =$226400
Outstanding common shares = 65000
Earnigs per share (EPS) = Basic earnings per share/outstanding common shares
= $226400/65000 = $3.4831
Diluted earnings per share :
Rio grande net income after amortization = $ 168000
= Rio grande net income after amortization - Austins preferred dividends
= $168000 - $50000 = $ 118000
Interest savings assuming total expense ( net of taxes) = $41000
= Income applicable to diluted EPS - Interest saving assuming total expense
= $118000 - $41000 = $77000
1. Outstanding shares of Rio grande = 40000
2.Assumed conversion of stock warrernts = 10000
3.Assumed treasury stock acquisition using proceeds from warrent conversion = 10000*10/20 = $5000
4. Assumed conversion of bond = 25000
Rio grande shares applicable to diluted EPS (1+2-3+4) = 40000+10000-5000+25000 = 70000
Shares collected by Austin = (40000*80%)+(5000*1/2) = 32000+2500 =$34500
% owned by Austin = $34500
therefore., Rio grands share applicable to diluted EPS /Owned by Austin *100
= 34500/65000*100
=52%
Income applicable to Austin diluted EPS = $77000*52% = $40040
Austin separete income = $276400 - $114400 = $ 162000
Preferred dividends assumed converted = $0
Earnings applicable to diluted EPS = $162000+$40040 = $ 202040
Austin outstanding common shares = 65000
Assumed conversion of preferred stock = 10000*4 = 40000
Shares applicable to diluted EPS = 65000+40000 = 105000
Diluted earnings per share =( $202040/105000)*10 = $19.24
Therefore., Diluted EPS = $19.24
ekkarill92 answered 2 years agoRelated Solutions
Following are separate income statements for Austin, Inc., and its 80 percent–owned subsidiary, Rio Grande Corporation...
Following are separate income statements for Austin, Inc., and
its 80 percent–owned subsidiary, Rio Grande Corporation as well as
a consolidated statement for the business combination as a whole
(credit balances indicated by parentheses).
Austin
Rio Grande
Consolidated
Revenues
$
(726,000
)
$
(526,000
)
$
(1,252,000
)
Cost of goods sold
426,000
274,000
700,000
Operating expenses
126,000
96,000
247,000
Equity in earnings of Rio Grande
(104,800
)
Individual company net income
$
(278,800
)
$
(156,000
)
Consolidated net...
Following are separate income statements for Austin, Inc., and its 80 percent owned subsidiary, Rio Grande...
Following are separate income statements for Austin, Inc., and
its 80 percent owned subsidiary, Rio Grande Corporation as well as
a consolidated statement for the business combination as a
whole.
Austin
Rio Grande
Consolidated
Revenues
$
(760,000
)
$
(540,000
)
$
(1,300,000
)
Cost of goods sold
420,000
320,000
740,000
Operating expenses
120,000
66,000
215,000
Equity in earnings of Rio
Grande
(104,000
)
Individual company net
income
$
(324,000
)
$
(154,000
)
Consolidated net income
$
(345,000
)...
Following are separate income statements for Austin, Inc., and its 80 percent owned subsidiary, Rio Grande...
Following are separate income statements for Austin, Inc., and
its 80 percent owned subsidiary, Rio Grande Corporation as well as
a consolidated statement for the business combination as a
whole.
Austin
Rio Grande
Consolidated
Revenues
$
(739,000
)
$
(526,000
)
$
(1,265,000
)
Cost of goods sold
413,000
313,000
726,000
Operating expenses
114,000
83,000
235,000
Equity in earnings of Rio Grande
(70,000
)
Individual company net income
$
(282,000
)
$
(130,000
)
Consolidated net income
$
(304,000
)...
Following are separate income statements for Austin, Inc., and its 90 percent owned subsidiary, Rio Grande...
Following are separate income statements for Austin, Inc., and
its 90 percent owned subsidiary, Rio Grande Corporation as well as
a consolidated statement for the business combination as a
whole.
Austin
Rio Grande
Consolidated
Revenues
$
(745,000
)
$
(530,000
)
$
(1,275,000
)
Cost of goods sold
415,000
315,000
730,000
Operating expenses
116,000
76,000
232,000
Equity in earnings of Rio Grande
(77,000
)
Individual company net income
$
(291,000
)
$
(139,000
)
Consolidated net income
$
(313,000
)...
Following are separate income statements for Austin, Inc., and its 70 percent owned subsidiary, Rio Grande...
Following are separate income statements for Austin, Inc., and
its 70 percent owned subsidiary, Rio Grande Corporation as well as
a consolidated statement for the business combination as a
whole.
Austin
Rio Grande
Consolidated
Revenues
$
(733,000
)
$
(522,000
)
$
(1,255,000
)
Cost of goods sold
411,000
311,000
722,000
Operating expenses
107,000
81,000
206,000
Equity in earnings of Rio
Grande
(95,000
)
Individual company net
income
$
(310,000
)
$
(130,000
)
Consolidated net income
$
(327,000
)...
Following are separate income statements for Austin, Inc., and its 90 percent owned subsidiary, Rio Grande...
Following are separate income statements for Austin,
Inc., and its 90 percent owned subsidiary, Rio Grande Corporation
as well as a consolidated statement for the business combination as
a whole.
Austin
Rio
Grande
Consolidated
Revenues
$
(763,000
)
$
(542,000
)
$
(1,305,000
)
Cost of goods
sold
421,000
321,000
742,000
Operating
expenses
121,000
67,000
216,000
Equity in
earnings of Rio Grande
(105,000
)
Individual
company net income
$
(326,000
)
$
(154,000
)
Consolidated net
income
$
(347,000
)...
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:BurksForemanRevenues$(422,000)$(322,000)Expenses373,000236,000Gain on sale of equipment0(26,000)Equity earnings of
subsidiary(63,000)0Net income$(112,000)$(112,000)Outstanding common shares60,00033,000Additional InformationAmortization expense resulting from Foreman’s excess
acquisition-date fair value is $36,000 per year.Burks has convertible preferred stock outstanding. Each of these
6,000 shares is paid a dividend of $4 per year. Each share can be
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
and its 80 percent–owned subsidiary, Foreman Company:
Burks
Foreman
Revenues
$
(420,000
)
$
(320,000
)
Expenses
344,000
235,000
Gain on sale of equipment
0
(25,000
)
Equity earnings of
subsidiary
(62,000
)
0
Net income
$
(138,000
)
$
(110,000
)
Outstanding common shares
60,000
30,000
Additional Information
Amortization expense resulting from Foreman’s excess
acquisition-date fair value is $35,000 per year.
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:...
The following separate income statements are for Burks Company
and its 80 percent–owned subsidiary, Foreman Company: Burks Foreman
Revenues $ (448,000 ) $ (348,000 ) Expenses 273,000 249,000 Gain on
sale of equipment 0 (39,000 ) Equity earnings of subsidiary (73,000
) 0 Net income $ (248,000 ) $ (138,000 ) Outstanding common shares
60,000 40,000
Additional Information Amortization expense resulting from
Foreman’s excess acquisition-date fair value is $49,000 per year.
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:...
The following separate income statements are for Burks Company
and its 80 percent–owned subsidiary, Foreman Company:
Burks
Foreman
Revenues
$
(438,000
)
$
(338,000
)
Expenses
270,000
244,000
Gain on sale of equipment
0
(34,000
)
Equity earnings of
subsidiary
(68,000
)
0
Net income
$
(236,000
)
$
(128,000
)
Outstanding common shares
65,000
40,000
Additional Information
Amortization expense resulting from Foreman’s excess
acquisition-date fair value is $41,000 per year.
Burks has convertible preferred stock outstanding. Each of these...
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