Question

The following separate income statements are for Burks Company and its 80 percent–owned subsidiary, Foreman Company:

	Burks				Foreman
Revenues	$	(442,000	)		$	(342,000	)
Expenses		288,000				246,000
Gain on sale of equipment		0				(36,000	)
Equity earnings of subsidiary		(70,000	)			0
Net income	$	(224,000	)		$	(132,000	)
Outstanding common shares		60,000				36,000

Additional Information

Amortization expense resulting from Foreman’s excess acquisition-date fair value is $46,000 per year.

Burks has convertible preferred stock outstanding. Each of these 13,000 shares is paid a dividend of $5 per year. Each share can be converted into five shares of common stock.

Stock warrants to buy 20,000 shares of Foreman are also outstanding. For $10, each warrant can be converted into a share of Foreman’s common stock. The fair value of this stock is $20 throughout the year. Burks owns none of these warrants.

Foreman has convertible bonds payable that paid interest of $51,000 (after taxes) during the year. These bonds can be exchanged for 10,000 shares of common stock. Burks holds 20 percent of these bonds, which it bought at book value directly from Foreman.

Compute basic and diluted EPS for Burks Company. (Round your intermediate percentage value and final answer to 2 decimal places.)

Earnings Per Share
Basic
Diluted

Answer 1

Computation of Basic EPS of Parent company B
Particukar	Amount	Amount
Net Income of parent Company (442000-288000)		$154,000.00
Net Income of Subsidary Company (132000*80%)	$105,600.00
Less: Amortisation Expense (46000*80%)	$36,800.00	$68,800.00
Less : Preferred Stock Dividend (13000X$5)		$65,000.00
Earning applicable to Basic EPS Calculation		$157,800.00
Outstanding share of Company B		60000
Basic earning per share		$2.63

Computation of Diluted EPS per share
Consolidated Net Income ($154000+$86000)		$240,000.00
Subsidiary net Income	$132,000.00
Less: Excess Fair value consideration	$46,000.00
Income applicable to diluted EPS	$86,000.00
Less: Non Controlling Interest (1-(36000*80%/46000))	$0.37	$32,155.40
Parent's Net Income Applicable to diluted EPS		$207,844.60
No. of Share for diluted EPS( As per W/Note)		125000
Diluted EPS		$1.66

Working Notes
Outstanding Share		36000
Conversion of warrants		20000
Acquisition of treasury stock (20000*10)/20		-10000
Total Share applicable to Diluted EPS of Subsidiary		46000
Outstanding share of companyB		60000
Conversion of Preferred Stock (13000*5)		65000
Total Share applicable to diluted EPS of Parent		125000