The Cain Company owns 800 of the 1000 shares of the Able Company which it bought
ID: 2543781 • Letter: T
Question
The Cain Company owns 800 of the 1000 shares of the Able Company which it bought at book value Able Company does not pay any dividends and Cain Company uses the initial value method to account for its investment in Able Information for 2016 is as follows: CAIN ABLE INCOME BEFORE INTEREST AND TAX INTEREST INCOME BEFORE TAXES TAXES INCOME $900,000 $100,000 $800,000 $240,000 $560,000 $200,000 $60,000 $140,000 $42,000 $98,000 3096 UNCONSOLIDATED AMOUNTS CAIN HAS 50,000O SHARES OF STOCK OUTSTANDING ABLE'S INTEREST EXPENSE IS THE RESULT OF A $1,000,000 6% CONVERTIBLE DEBT, THE DEBTHOLDER CAN CONVERT THIS INTO 600 SHARES OF ABLE STOCK REQUIRED A) IF THE CONVERTIBLE DEBT IS ANTI-DILUTIVE WHAT ISTHE EPS OF CAIN FOR THE YEAR? B) IF THE CONVERTIBLE DEBT IS DILUTIVE WHAT ISTHE EPS OF CAIN FOR THE YEAR?Explanation / Answer
Part a:
Income after tax of CAIN
560000
Add: Share of profit of ABLE
(98000 X 800 /1000)
78400
Consolidated income
638400
Number of shares outstanding
50000
EPS if the debt is anti-dilutive
12.768
(638400 / 50000)
Part b:
Share of income in ABLE:
Income before interest and tax
200000
Less: Taxes @30%
(200000 X 30%)
60000
Income after tax
140000
Number of shares outstanding
1000
Add: No. of shares to be issued for conversion of debt
600
1600
Holding of CAIN
800
Income after tax of CAIN
560000
Add: Share of profit of ABLE
(140000 X 800 /1600)
70000
Consolidated income
630000
Number of shares outstanding
50000
EPS if the debt is anti-dilutive
12.6
(630000 / 50000)
Part a:
Income after tax of CAIN
560000
Add: Share of profit of ABLE
(98000 X 800 /1000)
78400
Consolidated income
638400
Number of shares outstanding
50000
EPS if the debt is anti-dilutive
12.768
(638400 / 50000)