Effect of Preferred Stock on Earnings per Share
Amber Corporation holds 70 percent of Newtop Company’s voting common shares but none of its preferred shares. Summary balance sheets for the companies on December 31, 20X1, are as follows:
| Amber Corporation | Newtop Company |
Cash | $ 14,000 | $ 30,000 |
Accounts Receivable | 40,000 | 50,000 |
Inventory | 110,000 | 80,000 |
Buildings and Equipment | 280,000 | 200,000 |
Less: Accumulated Depreciation | (130,000) | (60,000) |
Investment in Newtop Company | 126,000 |
|
Total Assets | $440,000 | $300,000 |
Accounts Payable | $ 70,000 | $ 70,000 |
Wages Payable | 40,000 |
|
Preferred Stock | 100,000 | 50,000 |
Common Stock ($10 par value) | 120,000 | 100,000 |
Retained Earnings | 110,000 | 80,000 |
Total Liabilities and Owners’ Equity | $440,000 | $300,000 |
Neither of the preferred issues is convertible. Amber’s preferred pays a 9 percent annual dividend and Newtop’s preferred pays a 10 percent dividend. Newtop reported net income of $45,000 and paid a total of $20,000 of dividends in 20X1. Amber reported income from its separate operations of $59,000 and paid total dividends of $45,000 in 20X1.
Required
Compute 20X1 consolidated earnings per share. Ignore any tax consequences.
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