Porter Corporation owns all 30,000 shares of the common stock of Street, Inc. Po

Question

Porter Corporation owns all 30,000 shares of the common stock of Street, Inc. Porter has 70,000 shares of its own common stock outstanding. During the current year, Porter earns net income (without any consideration of its investment in Street) of $211,000 while Street reports $147,000. Annual amortization of $15,000 is recognized each year on the consolidation worksheet based on acquisition- date fair-value allocations. Both companies have convertible bonds outstanding. During the current year, bond-related interest expense (net of taxes) is $36,000 for Porter and $28,000 for Street. Porter's bonds can be converted into 7,000 shares of common stock; Street's bonds can be converted into 10,000 shares. Porter owns none of these bonds. What are the earnings per share amounts that Porter should report in its current year consolidated income statement? (Round your answers to 2 decimal places.) Earnings per Share Basic Diluted

Explanation / Answer

Basic EPS :- Porter company

Consolidated Net Income = Porter's Reorted Income + Street's Reprted Income - Amortization Expense

= $211000 + $147000 - $15000

= $343000

Basic Earning per share = Consolidated Net Income / Porter shares outstanding

= $343000 / 70000 shares

= $4.9 per share

Diluted EPS - Street Company

Street Earning after amortization = $147000 - $15000 = $132000

Basic EPS = Street Earning after Amortization / Shares outstanding

= $132000 / 30000

= $4.4 per share

Diluted Earning Per Share = ($132000 + $28000)/(30000 + 10000)

= $160000 / 40000

= $4 per share

The Convertible bonds are dilutive and should be included, Because diluted earning per share is less than basic

earning per share.

Porter's share of street's diluted earnings :-

Porter's ownership percentage = 30000 / 40000 = 75%

Street's Earning for diluted EPS = $160000

Porter's ownership percentage = 75%

Earnings attributed to Porter Company = $160000 * 75% = $120000

Porter's Earning and shares for diluted EPS :-

Total Shares = 70000 + 7000 = 77000 shares

Diluted Earnings per share = $367000 / 77000 = $4.77 per share

Particulars Amount ($) Porter's Separate income $211000 Street's income applicable to porter $120000 Interest Saved $36000 Diluted earnings to porter $367000

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