Question

Following are separate income statements for Austin, Inc., and its 90 percent owned subsidiary, Rio Grande Corporation as well as a consolidated statement for the business combination as a whole.

	Austin				Rio Grande				Consolidated
Revenues	$	(742,000	)		$	(528,000	)		$	(1,270,000	)
Cost of goods sold		414,000				314,000				728,000
Operating expenses		117,000				75,000				226,000
Equity in earnings of Rio Grande		(81,000	)
Individual company net income	$	(292,000	)		$	(139,000	)
Consolidated net income									$	(316,000	)
Noncontrolling interest in consolidated net income										(24,000	)
Consolidated net income attributable to Austin									$	(292,000	)

Additional Information

• Annual excess fair over book value amortization of $34,000 resulted from the acquisition.
• The parent applies the equity method to this investment.
• Austin has 70,000 shares of common stock and 8,000 shares of preferred stock outstanding. Owners of the preferred stock are paid an annual dividend of $50,000, and each share can be exchanged for five shares of common stock.
• Rio Grande has 40,000 shares of common stock outstanding. The company also has 10,000 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 $36,000. These bonds can be exchanged for 25,000 shares of the subsidiary’s common stock.

Determine Austin’s basic and diluted EPS. (Round your final answers to 2 decimal places.)

Answer 1

solution Basic carvings per shave Austin net income - $ 292,000 Austin preferoed-stock dividends $50,000 Applicabale aonings to Austin carding peo shage- $292,000 - $50.000 2$ 242000 outstanding common shapes. 2$70,000 Basic earring Pet shage out standing common shaves 2 242006 70,000 VND -$3.4571 | .: Basic carnings pero shape (EPS) = $3.457 Diluted earnings fer shape Rio grande het in come aftes amortization .

. $139,600 >) Rio groande net income atter amortization - Austins preferred dividends = $139100 - $50.000 z $ 89000 gange Interest savings assuming total int expense (net of taxes), $ 36,000 Income applicable to diluted EPS - Interst saving assuming total expense- 2 $ 369 000 – $36.000 $ 53000 outstanding shapes of Rio grande > $40,000 Assumed conversion of stock warrants = 10,000 Assumed to easugy stock acquisition using Proceeds froom wadrant conversion 2 > 0,000 $10 ARE $20 foto z 10.000 x $0.5

: 7$ 100D Assumed conversion of bonds > 25,000 Rio goand's shades applicable to diluted EPS > outstanding shares of Rio gaandet Assumed conversion of stock waosants – Assumed treasury stock acquisition proceeds from warran conversion + Assumed conversion of bonds - 10,000+ 10.000 - 5000 + 25.000 1. 7 70000 Shapes collected by Austins (90°/-X40000) + x 5000 236.000 +25 000 238,500 % owned by Austin 2 38,500 .: Rio goand's shape applicable to diluted Els Caic "J. owned by Austin X100 7 38.500_X100 ostoliese 70,000 0.55 X 100

255% Income applicable to Austin dilated EPS= $s 2006 Assy. TH$ 29,150 Austin sepasate income= 292,000 - 81000 $ 211,000 preferoed dividends assumed converted = $0 Edonings applicable to dibuted EPS= $211.00 +29150 z $ 240,150 Austin outstanding common shades > 70,000 Assumed conversion of Polferold Stock - 8000X5 240.000 shares applicable to diluted EPS= 70000 + 40,000 > 110.000 Diluted earnings pershare> $240,150 $119000 2821083) Mos pilated earnings peos shape $ 21183)