Homework Answers
Answer:
Calculate diluted EPS to be reported by P as follows:
| Particulars | Amount ($) |
| Net Income of P | $624,000 |
| Add: Income from S (W.N-6) | $212,800 |
| Earnings applicable to diluted EPS (a) | $836,800 |
| Outstanding common shares (b) | 50,000 |
| Diluted EPS (a/b) | $16.74 |
Working Notes (W.N):
1.) Calculate number of shares from conversion of stock warrants.
Total shares from warrants = Stock warrants outstanding x
(Acquired share price/Fair value of share)
=10000 x ($7.5/$15)
=5000 shares
2.) Calculate percentage of warrants owned by
P
P percentage of warrants = (Number of warrants of P/Total number of
warrants)
=4500/10000
=45%
3.) Calculated total shares hold by S after conversion.
| Particulars | Amount ($) |
| Shares outstanding | 50,000 |
| Add: Assumed conversion of stock warrants | 10,000 |
| Less: Repurchase treasury stock (10000-5000) | -5,000 |
| Total number of shares for diluted earnings | 55,000 |
4.) Calculate shares hold by P after conversion.
| Particulars | Shares |
| Shares outstanding | 50,000 |
| Add: P shares from warrants (5000 x 45%) | 2,250 |
| Total shares held by P | 52,250 |
5.) Calculate percentage P's ownership in S as shown below:
Percentage of P's holding in S = Total shares held by P/Total
shares outstanding of S
=52,250/55,000
=95% (rounded off)
6.) Calculate amount of P's ownership share in S net
income.
P's share from S net income = S net income x Percentage of P's
holding in S
=$224,000 x 95%
=$212,800
Add Answer to:
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