The following separate income statements are for Burks Company and its 80 percen

Question

The following separate income statements are for Burks Company and its 80 percent–owned subsidiary, Foreman Company: Burks Foreman Revenues $ (426,000) $ (326,000) Expenses 300,000 238,000 Gain on sale of equipment 0 (28,000) Equity earnings of subsidiary (62,400) 0 Net income $ (188,400) $ (116,000) Outstanding common shares 60,000 35,000 Additional Information • Amortization expense resulting from Foreman’s excess acquisition-date fair value is $38,000 per year. • Burks has convertible preferred stock outstanding. Each of these 7,000 shares is paid a dividend of $6 per year. Each share can be converted into six shares of common stock. • Stock warrants to buy 14,000 shares of Foreman are also outstanding. For $10, each warrant can be converted into a share of Foreman’s common stock. The fair value of this stock is $20 throughout the year. Burks owns none of these warrants. • Foreman has convertible bonds payable that paid interest of $43,000 (after taxes) during the year. These bonds can be exchanged for 14,000 shares of common stock. Burks holds 20 percent of these bonds, which it bought at book value directly from Foreman. Compute basic and diluted EPS for Burks Company. (Round your intermediate percentage value to the nearest whole number and the final answer to 2 decimal places.)

Explanation / Answer

Burks Company Foreman Company Burks Foreman Revenues $      (426,000) $           (326,000) Expenses $       300,000 $            238,000 Gain on sales of equipment $                -   $             (28,000) Equity earnings of subsidiary $        (62,000) $                     -   Net income $      (188,000) $           (116,000) Outstanding common shares             60,000                  35,000 Basic EPS of Burks company Reported income (separate - Burks company) $       126,000 Income of foreman company = 80% x ( 116000 - 38000) $         62,400 Dividends ( Preferred stock) = 7000 x 6 $        (42,000) Burks earning for the basic EPS $       146,400 Burks Outstanding shares             60,000 Basic EPS = Net earning / Outstanding shares $             2.44 Diluted EPS of Burks company Reported income (separate - Burks company) $       126,000 Income of foreman company = 80% x ( 116000 - 38000) $         62,400 Dividends ( Preferred stock) = 7000 x 6 $        (42,000) Burks earning for the basic EPS $       146,400 Conversion of Preferred stock = 7000 x 6             42,000 Outstanding common shares             60,000 Total shares outstanding           102,000 Diluted EPS = Earnings / Total share outstanding $             1.44

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