Chapter 10, Problem 10.33P

Comprehensive Earnings per Share

Mighty Corporation holds 80 percent of Longfellow Company’s common stock. The following balance sheet data are presented for December 31, 20X7:

Longfellow reported net income of $115,000 in 20X7 and paid dividends of $60,000. Its bonds have an annual interest rate of 8 percent and are convertible into 30,000 common shares. Its preferred shares pay an 11 percent annual dividend and convert into 20,000 shares of common stock. In addition, Longfellow has warrants outstanding for 10,000 shares of common stock at $8 per share. The 20X7 average price of Longfellow common shares was $40.

Mighty reported income of $300,000 from its own operations for 20X7 and paid dividends of $200,000. Its 10 percent bonds convert into 25,000 shares of its common stock. The companies file separate tax returns and are subject to income taxes of 40 percent.

Required

Compute basic and diluted EPS for the consolidated entity for 20X7.