Eagle Corporation holds 80 percent of Standard Company’s common shares. The comp

Question

Eagle Corporation holds 80 percent of Standard Company’s common shares. The companies report the following balance sheet data for December 31, 20X1:

An 8 percent annual dividend is paid on the Eagle preferred stock and a 12 percent dividend is paid on the Standard preferred stock. Eagle's preferred shares are not convertible. Standard’s preferred shares can be converted into 15,000 shares of common stock at any time. For 20X1, Standard reports $47,000 of net income and pays total dividends of $27,000, and Eagle reports $69,000 of income from its separate operations and pays total dividends of $42,000.

Compute basic and diluted EPS for the consolidated entity for 20X1. (Round your answers to 2 decimal places.)

Eagle Corporation holds 80 percent of Standard Company’s common shares. The companies report the following balance sheet data for December 31, 20X1:

Explanation / Answer

Basic EPS

Preference Dividend of Standard = 12% X 100,000 = 12,000

Equity Dividend of Standard = 27,000 - 12,000 = 15,000

Income of Eagle from Seperate Operations = 69,000

Income of Eagle from Standard = (80% X (47000-15000)) - 12000 = 10,000

Note: If Standard has already paid the dividend, that would be a recorded seperately as a revenue in the books of Eagle and as a result it would already be included in the income of Eagle amounting to $69,000.

EPS = 79,000/10000 shares = $7.9 shares.

Diluted EPS

Assuming the equity shares of Standard are converted into 15000 shares, Eagles holding in Standard would fall down to 8000/(25000) = 32%.

Income of Eagle from Standard = 32% X (47000-15000))= 10,240.

Revised EPS would be =(10,240 + 69,000)/10000 = $7.924 per share

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