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: Punch Manufacturing Corporation Short Retail Stores Assets Cash $ 58,000 $ 38,000 Accounts Receivable 110,000 90,000 Inventory 250,000 125,000 Land 105,000 75,000 Buildings and Equipment 510,000 310,000 Less: Accumulated Depreciation (230,000) (140,000) Investment in Short Retail Stores 140,000 Total Assets $ 943,000 $ 498,000 Liabilities and Equity Accounts Payable $ 113,000 $ 33,000 Bonds Payable 270,000 200,000 Preferred Stock ($10 par value) 200,000 90,000 Common Stock: $10 par value 150,000 $5 par value 100,000 Retained Earnings 210,000 75,000 Total Liabilities and Equity $ 943,000 $ 498,000 Short Retail’s 8 percent preferred stock is convertible into 15,000 shares of common stock, and its 10 percent bonds are convertible into 8,000 shares of common stock. Short reported net income of $52,800 for 20X4 and paid dividends of $30,900. 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 $100,000 in 20X4 and paid dividends of $69,000. 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.

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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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:

	Punch Manufacturing Corporation	Short Retail Stores
Assets
Cash	$ 58,000	$ 38,000
Accounts Receivable	110,000	90,000
Inventory	250,000	125,000
Land	105,000	75,000
Buildings and Equipment	510,000	310,000
Less: Accumulated Depreciation	(230,000)	(140,000)
Investment in Short Retail Stores	140,000
Total Assets	$ 943,000	$ 498,000
Liabilities and Equity
Accounts Payable	$ 113,000	$ 33,000
Bonds Payable	270,000	200,000
Preferred Stock ($10 par value)	200,000	90,000
Common Stock:
$10 par value	150,000
$5 par value		100,000
Retained Earnings	210,000	75,000
Total Liabilities and Equity	$ 943,000	$ 498,000

Short Retail’s 8 percent preferred stock is convertible into 15,000 shares of common stock, and its 10 percent bonds are convertible into 8,000 shares of common stock. Short reported net income of $52,800 for 20X4 and paid dividends of $30,900.

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 $100,000 in 20X4 and paid dividends of $69,000. The companies file separate tax returns and are subject to a 40 percent income tax.