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Porter Corporation owns all 24,000 shares of the common stock of Street, Inc. Porter has 66,000...

Porter Corporation owns all 24,000 shares of the common stock of Street, Inc. Porter has 66,000 shares of its own common stock outstanding. During the current year, Porter earns net income (without any consideration of its investment in Street) of $222,000 while Street reports $121,000. Annual amortization of $13,000 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 $30,000 for Porter and $15,000 for Street. Porter’s bonds can be converted into 5,000 shares of common stock; Street’s bonds can be converted into 6,000 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.)

1. Basic

2. Diluted

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Answer #1

!) Basic Earning per share based on consolidated Income statement would be 5 $

Workings are as below

Fig in $
Company Porter Street consolidated
Common stock (units) 66000 24000 66000
% holding of Porter 100%
Net earning 222000 121000 343000
Less: Amortisation
Acquistion date FV adj 13000
330000
Basic EPS                   5.00

2) Diluted Earning per share based on consolidated Income statement would be 4.90 $

Computation of Consolidated Diluted EPS
1 Computation of Diluted EPS of Street Fig in $
Common Stock 24000
Convertible bonds 6000
Convertible ratio 1
Post conversion stock 30000
Net earning          1,21,000
Add
Bond interest             15,000
Earnings before interest          1,36,000
Diluated EPS                  4.53
2 Porter share in EPS of Street
Porter holdings in street No. of shares 24000
Total Revised stock of Street 30000
% holding 80%
Share of Porter in EPS of Street          1,08,800
3 Consolidated earnings
Porter standalone earnings before interest
Net earning 222000
Add
Bond interest 30000
Earnings before interest 252000
Porter standalone Earnings 252000
Share in Street earnings          1,08,800
EPS * 24000 held by Porter
Consolidated earnings before interest 360800
Less
Acquistion date FV adj 13000
Consolidated earnings after FV adj 347800
Porter
Convertible bonds 5000
Convertible ratio 1
Post conversion stock 71000 71000
Diluted EPS                  4.90
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