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On January 1, 2000 Batman Company acquired all of the common stock of Robin Company at...

On January 1, 2000 Batman Company acquired all of the common stock of Robin Company at book value. Batman accounts for its investment in Robin using the initial value method and Robin does not pay dividends on its common stock.

The Balance sheets of Batman and Robin on December 31, 2020 is listed below:

Batman Robin
common stock $1 par 1,000,000 20,000
preferred stock $10 par 4% 10,000
net income 90,000 45,000

a) Determine the consolidated earnings per share of Batman Company. Robin's preferred stock in non-convertible.

b) The preferred stock is convertible into 5 shares of common stock of Robin Company. Determine the consolidated earnings per share of Robin Company.

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Answer #1

a) Calculation of Consolidated Earning Per Share :-

Consolidated Net Income = $90000 + $45000 = $135000

No of Outstanding Common Stock = $1000000 / $1 = 1000000 shares

Consolidated Earning Per Share = Consolidated Net Income / No of Outstanding Common Stock

= $135000 / 1000000

= 0.135 per share

b) Preferred Shares convert into common shares :-

No. of Preferred Shares = $10000/$10 = 1000 shares

Converted Common Shares = 1000 * 5 = 5000 shares

Total Common Stock = 10000+5000 = 15000 shares

Earning Per Share = Net Income / Total Common Stock

= $45000 / 15000

= $3 per share

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