Effect of Convertible Preferred Stock on Earnings per Share
Eagle Corporation holds 80 percent of Standard Company’s common shares. The companies report the following balance sheet data for December 31, 20X1:
| Eagle Corporation | Standard Company |
Cash | $ 50,000 | $ 40,000 |
Accounts Receivable | 80,000 | 60,000 |
Inventory | 140,000 | 90,000 |
Buildings and Equipment | 700,000 | 300,000 |
Less: Accumulated Depreciation | (280,000) | (140,000) |
Investment in Standard Company Stock | 160,000 |
|
Total Assets | $850,000 | $350,000 |
Accounts Payable | $120,000 | $ 50,000 |
Taxes Payable | 80,000 |
|
Preferred Stock ($10 par value) | 200,000 | 100,000 |
Common Stock: |
|
|
$10 par value | 100,000 |
|
$5 par value |
| 50,000 |
Retained Earnings | 350,000 | 150,000 |
Total Liabilities and Owners’ Equity | $850,000 | $350,000 |
An 8 percent annual dividend is paid on the Eagle preferred stock and a 12 percent dividend is paid on the Standard preferred stock. The preferred shares of Eagle are not convertible. Standard’s preferred shares can be converted into 15,000 shares of common stock at any time. For 20X1, Standard reports net income of $45,000 and pays total dividends of $20,000, and Eagle reports income from its separate operations of $60,000 and pays total dividends of $35,000.
Required
Compute basic and diluted earnings per share for the consolidated entity for 20X1.
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