Question

Pain Corporation holds 90 percent of Soothing Company's common shares but none of its preferred shares. On the date of acquisition, the fair value of the noncontrolling interest was equal to 10 percent of the book value of Soothing Company. Summary balance sheets for the companies on December 31, 20X8, are as follows:

	Pain Corporation					Soothing Company
Cash and Receivables		$	80,000					$	70,000
Inventory			40,000						30,000
Buildings and Equipment (net)			160,000						150,000
Investment in Soothing Company			135,000						0
Total Assets		$	415,000					$	250,000
Accounts Payable			50,000					$	25,000
Preferred Stock ($10 par value)			50,000						75,000
Common Stock ($5 par value)			100,000						50,000
Retained Earnings			215,000						100,000
Total Liabilities and Owners' Equity		$	415,000					$	250,000

Pain's preferred pays a 8 percent annual dividend, and Soothing's preferred pays a 10 percent dividend. Soothing's preferred shares can be converted into 20,000 shares of common stock at any time. Soothing reported net income of $35,000 and paid a total of $10,000 of dividends in 20X8. Pain reported income from its separate operations of $80,000 and paid total dividends of $25,000 in 20X8.

52) Based on the information provided, what is the diluted earnings per share for the consolidated entity for 20X8?

A) $4.53

B) $4.33

C) $4.00

D) $3.80

Pain Corporation holds 90 percent of Soothing Company's common shares but none of its preferred shares. On the date of acquisition, the fair value of the noncontrolling interest was equal to 10 percent of the book value of Soothing Company. Summary balance sheets for the companies on December 31, 20X8, are as follows:

	Pain Corporation					Soothing Company
Cash and Receivables		$	80,000					$	70,000
Inventory			40,000						30,000
Buildings and Equipment (net)			160,000						150,000
Investment in Soothing Company			135,000						0
Total Assets		$	415,000					$	250,000
Accounts Payable			50,000					$	25,000
Preferred Stock ($10 par value)			50,000						75,000
Common Stock ($5 par value)			100,000						50,000
Retained Earnings			215,000						100,000
Total Liabilities and Owners' Equity		$	415,000					$	250,000

Pain's preferred pays a 8 percent annual dividend, and Soothing's preferred pays a 10 percent dividend. Soothing's preferred shares can be converted into 20,000 shares of common stock at any time. Soothing reported net income of $35,000 and paid a total of $10,000 of dividends in 20X8. Pain reported income from its separate operations of $80,000 and paid total dividends of $25,000 in 20X8.

52) Based on the information provided, what is the diluted earnings per share for the consolidated entity for 20X8?

A) $4.53

B) $4.33

C) $4.00

D) $3.80

Can you please explain to me how the answer is $4.33 using math steps

Answer 1

Computation of diluted earning per share
Particulars	Amount($)
Pain's Net income	80,000
Add: share of income from soothing (35,000*9000 shares/30,000 shares)	10,500
Less: Preferred dividednd paid ($ 50,000 * 8%)	4000
Net income for common shareholders (A)	86,500
No. of common stock (B)	20,000
Diluted earning per share (A/B)	4.33
Working notes:
Soothing common share ($ 50,000/$ 5 per share)	10,000
Convrtible preferred share	20,000
Total	30,000
Pain's share of Soothing common share	9,000
Soothing Net income	$35,000
Pain's share in net income (including dividend)	$10,500
($ 35,000 * 9,000 shares/30,000 shares)