Calculation Amount Amount Punch Manufacturing Income from Operation $ 125,000.00 Short Retail Stores Net income $53,400.00 $ 12,000.00 $ 65,400.00 Assumed conversion of bonds Earning available Short Share outstanding 20,000.00 Assume conversion of bonds 8,000.00 Assume conversion of preferred shares 14,000.00 Divide by total shares 42,000.00 |Compute EPS for Short Multiply by shares held by Punch Contribution to Punch Earnings $ 1.56 22,000*80% 17600 $ 27,405.71 $ 152,405.71 Total earning of Punch Manufacturing Less-preferred dividend (22,000.00) $ 130,405.71 Earnings to Punch Common Shareholders Divide by Punch Shares outstanding 15,000.00 $ Diluted EPS 8.69 Punch Manufacturing Corporation Short Retail Stores Assets $ 51,000 102,000 260,000 100,000 490,000 (235,000) 124,000 $ 892,000 $ 31,000 82,000 130,000 70,000 350,000 (130,000) Cash Accounts Receivable Inventory Land Buildings and Equipment Less: Accumulated Depreciation Investment in Short Retail Stores Total Assets $ 533,000 Liabilities and Equity Accounts Payable Bonds Payable Preferred Stock ($10 par value) Common Stock: $ 52,000 280,000 200,000 $ 88,000 200,000 90,000 $10 par value $5 par value Retained Earnings 150,000 210,000 $ 892,000 100,000 55,000 $ 533,000 Total Liabilities and Equity

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Punch Manufacturing Corporation owns 80 percent of the common shares of Short Retail Stores. The companies’ balance sheets as of December 31, 20X4, were as follows:

Short Retail’s 8 percent preferred stock is convertible into 14,000 shares of common stock, and its 10 percent bonds are convertible into 8,000 shares of common stock. Short reported net income of $53,400 for 20X4 and paid dividends of $31,000.

Punch Manufacturing has 11 percent preferred stock and 12 percent bonds outstanding, neither of which is convertible. Punch reported after-tax income, excluding investment income from Short, of $125,000 in 20X4 and paid dividends of $68,000. The companies file separate tax returns and are subject to a 40 percent income tax.

Required:
Compute basic and diluted EPS for the consolidated entity. (Round your intermediate calculations and final answers to two decimal places.)

*Basic EPS was calculated at $9.33, which is correct. I am having difficulty calculating Diluted EPS.

Calculation Amount
Amount
Punch Manufacturing Income from Operation
$ 125,000.00
Short Retail Stores Net income
$53,400.00
$ 12,000.00
$ 65,400.00
Assumed conversion of bonds
Earning available
Short Share outstanding
20,000.00
Assume conversion of bonds
8,000.00
Assume conversion of preferred shares
14,000.00
Divide by total shares
42,000.00
|Compute EPS for Short
Multiply by shares held by Punch
Contribution to Punch Earnings
$
1.56
22,000*80%
17600
$ 27,405.71
$ 152,405.71
Total earning of Punch Manufacturing
Less-preferred dividend
(22,000.00)
$ 130,405.71
Earnings to Punch Common Shareholders
Divide by Punch Shares outstanding
15,000.00
$
Diluted EPS
8.69

Punch Manufacturing
Corporation
Short
Retail Stores
Assets
$ 51,000
102,000
260,000
100,000
490,000
(235,000)
124,000
$ 892,000
$ 31,000
82,000
130,000
70,000
350,000
(130,000)
Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment
Less: Accumulated Depreciation
Investment in Short Retail Stores
Total Assets
$ 533,000
Liabilities and Equity
Accounts Payable
Bonds Payable
Preferred Stock ($10 par value)
Common Stock:
$ 52,000
280,000
200,000
$ 88,000
200,000
90,000
$10 par value
$5 par value
Retained Earnings
150,000
210,000
$ 892,000
100,000
55,000
$ 533,000
Total Liabilities and Equity

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