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Earnings per Share with Convertible Securities Branch Manufacturing Corporation owns 80 percent of the common shares of Short Retail Stores The companies’ balance sheets as of December

Earnings per Share with Convertible Securities Branch Manufacturing Corporation owns 80 percent of the common shares of Short Retail Stores The companies’ balance sheets as of December

Earnings per Share with Convertible Securities

Branch 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:

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 Stock

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.

Branch Manufacturing has 11 percent preferred stock and 12 percent bonds outstanding, neither of which is convertible. Branch 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.

Tripti 09-Jul-2020

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