Punch Manufacturing Corporation owns 80 percent of the common shares of Short Retail Stores. The companies’ balance sheets as of December 31, 20X4, were as follows: Punch Manufacturing Corporation Short Retail Stores Cash $ 50,000 $ 30,000 Accounts Receivable 100,000 80,000 Inventory 260,000 120,000 Land 90,000 60,000 Buildings & Equipment 500,000 300,000 Less: Accumulated Depreciation (220,000) (120,000) Investment in Short Retail Stores 120,000 Total Assets $900,000 $470,000 Accounts Payable $ 40,000 $ 20,000 Bonds Payable 300,000 200,000 Preferred Stock ($10 par value) 200,000 100,000 Common Stock: $10 par value 150,000 $5 par value 100,000 Retained Earnings 210,000 50,000 Total Liabilities & Equity $900,000 $470,000 Short Retail’s 8 percent preferred stock is convertible into 12,000 shares of common stock, and its 10 percent bonds are convertible into 8,000 shares of common stock. Short reported net income of $49,200 for 20X4 and paid dividends of $30,000. Punch Manufacturing has 11 percent preferred stock and 12 percent bonds outstanding, neither of which is convertible. Punch reported after-tax income, excluding investment income from Short, of $100,000 in 20X4 and paid dividends of $60,000. The companies file separate tax returns and are subject to a 40 percent income tax. Required Compute basic and diluted EPS for the consolidated entity.
P10–32 Earnings per Share with Convertible Securities
Punch Manufacturing Corporation owns 80 percent of the common shares of Short Retail Stores. The companies’ balance sheets as of December 31, 20X4, were as follows:
Punch Manufacturing Corporation Short Retail Stores
Cash $ 50,000 $ 30,000
Inventory 260,000 120,000
Land 90,000 60,000
Buildings & Equipment 500,000 300,000
Less: Accumulated
Investment in Short Retail Stores 120,000
Total Assets $900,000 $470,000
Accounts Payable $ 40,000 $ 20,000
Bonds Payable 300,000 200,000
Preferred Stock ($10 par value) 200,000 100,000
Common Stock:
$10 par value 150,000
$5 par value 100,000
Total Liabilities & Equity $900,000 $470,000
Short Retail’s 8 percent preferred stock is convertible into 12,000 shares of common stock, and its 10 percent bonds are convertible into 8,000 shares of common stock. Short reported net income of $49,200 for 20X4 and paid dividends of $30,000.
Punch Manufacturing has 11 percent preferred stock and 12 percent bonds outstanding, neither of which is convertible. Punch reported after-tax income, excluding investment income from Short, of $100,000 in 20X4 and paid dividends of $60,000. The companies file separate tax returns and are subject to a 40 percent income tax.
Required
Compute basic and diluted EPS for the consolidated entity.
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