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Following are separate income statements for Austin Inc and its 80 percent owned subsidiary Rio Grande Corporation as well as a consolidated statement for the business combination as a whole

Following are separate income statements for Austin, Inc., and its 80 percent–owned subsidiary, Rio Grande Corporation as well as a consolidated statement for the business combination as a whole.

Additional Information

• Annual excess fair over book value amortization of $25,000 resulted from the acquisition.

• The parent applies the equity method to this investment.

• Austin has 50,000 shares of common stock and 10,000 shares of preferred stock outstanding. Owners of the preferred stock are paid an annual dividend of $40,000, and each share can be exchanged for two shares of common stock.

• Rio Grande has 30,000 shares of common stock outstanding. The company also has 5,000 stock warrants outstanding. For $10, each warrant can be converted into a share of Rio Grande’s common stock. Austin holds half of these warrants. The price of Rio Grande’s common stock was $20 per share throughout the year.

• Rio Grande also has convertible bonds, none of which Austin owned. During the current year, total interest expense (net of taxes) was $22,000. These bonds can be exchanged for 10,000 shares of the subsidiary’s common stock. Determine Austin’s basic and diluted EPS.

Jul 21 2020 View more View Less

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