Question

Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of...

Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each preferred share received an annual per share dividend of $2 and is convertible into four shares of common stock. Knight did not own any of Stoop's preferred stock. Stoop also had 600 bonds outstanding, each of which is convertible into ten shares of common stock. Stoop's annual after-tax interest expense for the bonds was $2,000. Knight did not own any of Stoop's bonds. There are no excess amortizations or intra-entity transactions associated with this consolidation. Stoop reported net income of $300,000 for 2018. Knight has 100,000 shares of common stock outstanding and reported net income of $400,000 for 2018.

What would Knight Co. report as consolidated diluted earnings per share (rounded)?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

No of shares held by Knight Co. in Stoop Co. = 50,000 * 80% = 40,000 shares

Potential common stock due to conversion of preferred shares = 2000 *4 = 8000 shares

Potential common stock due to conversion of bonds = 600*10 = 6000 shares

Total diluted shares of Stoop= 8000+6000+50000 = 64000 shares

Percentage of holding of Knight co. post conversion of potential common stock = 40000/64000 = 62.5%

Stoop co's pre tax income = 300,000+2000 = 302,000

Knight's share in Stoop co's pre tax income = 302,000*62.5% = 188750

Knight Co's Consolidated diluted earnings = 188,750+400,000 = 588,750

Knight Co's total common stock shares = 100,000

Knight Co. EPS = Diluted Earnings / Common Stock

= 588,750/100,000

= $ 5.88 per share

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
K owned 80% of the common stock of S. S had 50,000 shares of $5 par...
K owned 80% of the common stock of S. S had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each preferred share received an annual per share dividend of $10.00 and is convertible into four shares of common stock. K did not own any of S’s preferred stock. S also had 600 bonds outstanding, each of which is convertible into ten shares of common stock. S’s annual after-tax interest expense for the bonds...
Paul Company had 100,000 shares of common stock outstanding on January 1, 2018. On September 30,...
Paul Company had 100,000 shares of common stock outstanding on January 1, 2018. On September 30, 2018, Paul sold 45,000 shares of common stock for cash. Paul also had 8,500 shares of convertible preferred stock outstanding throughout 2018. The preferred stock is $100 par, 5%, and is convertible into 3 shares of common for each share of preferred. Paul also had 470, 7%, convertible bonds outstanding throughout 2018. Each $1,000 bond is convertible into 30 shares of common stock. The...
Hutchins Company had​ 200,000 shares of common​ stock, 50,000 shares of convertible preferred​ stock, and​ $2,000,000...
Hutchins Company had​ 200,000 shares of common​ stock, 50,000 shares of convertible preferred​ stock, and​ $2,000,000 of​ 10% convertible bonds outstanding during the entire year. The preferred stock was convertible into​ 40,000 shares of common stock. During the current​ year, Hutchins paid dividends of​ $1.00 per share on the common stock and​ $2.00 per share on the preferred stock. Each​ $1,000 bond was convertible into 50 shares of common stock. The net income for the year was​ $1,000,000, and the...
Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000...
Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 6% convertible bonds outstanding during 2015. The preferred stock is convertible into 40,000 shares of common stock. During 2015, Hanson paid dividends of $.60 per share on the common stock and $1.50 per share on the preferred stock. Each $1,000 bond is convertible into 40 shares of common stock. The net income for 2015 was $400,000 and the income tax rate was 30%....
Sunland Company had 204000 shares of common stock, 21000 shares of convertible preferred stock, and $592000...
Sunland Company had 204000 shares of common stock, 21000 shares of convertible preferred stock, and $592000 of 11% convertible bonds outstanding during 2021. The preferred stock is convertible into 40400 shares of common stock. During 2021, Sunland paid dividends of $0.54 per share on the common stock and $1.80 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2021 was $357000 and the income tax rate was 25%....
Paul Company had 100,000 shares of common stock outstanding on January 1, 2021. On September 30,...
Paul Company had 100,000 shares of common stock outstanding on January 1, 2021. On September 30, 2021, Paul sold 58,000 shares of common stock for cash. Paul also had 15,000 shares of convertible preferred stock outstanding throughout 2021. The preferred stock is $100 par, 7%, and is convertible into 3 shares of common for each share of preferred. Paul also had 600, 9%, convertible bonds outstanding throughout 2021. Each $1,000 bond is convertible into 30 shares of common stock. The...
Sheridan Company had 206000 shares of common stock, 20000 shares of convertible preferred stock, and $598000...
Sheridan Company had 206000 shares of common stock, 20000 shares of convertible preferred stock, and $598000 of 12% convertible bonds outstanding during 2021. The preferred stock is convertible into 39000 shares of common stock. During 2021, Sheridan paid dividends of $0.56 per share on the common stock and $1.80 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2021 was $366000 and the income tax rate was 25%....
Abby Company had 150,000 shares of common stock outstanding on January 1, 2018. On September 30,...
Abby Company had 150,000 shares of common stock outstanding on January 1, 2018. On September 30, 2018, Abby sold 30,000 shares of common stock for cash. Abby also had 100, 8%, convertible bonds outstanding throughout 2018. Each $1,000 bond is convertible into 20 shares of common stock. The bonds sold originally at face value. The company also had 10,000 executive stock options outstanding that allowed executives to purchase shares of stock for $11.00. The average share price for the year...
AAA corp reported net income of $230,000 and had 400,000 shares of common stock outstanding for...
AAA corp reported net income of $230,000 and had 400,000 shares of common stock outstanding for the whole year. The firm had 2,000 shares of 10%, 100 par, preferred stock outstanding for the year. Each share of preferred is convertible to 40 shares of common. During the year, it issued 1,200 $1,000 par value, 7% bonds. Each bond is convertible to 100 shares of common. The firm has 20,000 stock options outstanding, and each option allows the holder to purchase...
Monsieur Company had 80,000 shares of common stock outstanding during 2020 and 2,000 shares of cumulative...
Monsieur Company had 80,000 shares of common stock outstanding during 2020 and 2,000 shares of cumulative 6%, $100 par preferred stock, each convertible into 5 shares of common stock with  $1 par value per share. The company’s tax rate is 25%. During 2020, Monsieur Company declared and paid $5,000 in preferred dividends and no common stock dividends. Monsieur Company reported net income of $318,000 in 2020. Compute basic and diluted EPS for 2020.                Basic EPS     Diluted EPS   $3.83             $3.40    $3.91            $3.53...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT