Primus, Inc., owns all outstanding stock of Sonston, Inc. For the current year,
ID: 2588553 • Letter: P
Question
Primus, Inc., owns all outstanding stock of Sonston, Inc. For the current year, Primus reports net income (exclusive of any investment income) of $528,000. Primus has 50,000 shares of common stock outstanding. Sonston reports net income of $128,000 for the period with 40,000 shares of common stock outstanding. Sonston also has 5,000 stock warrants outstanding that allow the holder to acquire shares at $14.00 per share. The value of this stock was $28 per share throughout the year. Primus owns 2,100 of these warrants. What amount should Primus report for diluted earnings per share? (Round your intermediate percentage value to the nearest whole number and the final answer to 2 decimal places.) Diluted earnings per shareExplanation / Answer
For sons ton’s diluted EPS
net income
$128,000
outstanding shares
40,000
assumed conversion of stock warrants
5,000
Repurchase of treasury stock with proceeds of stock Warrants (5,000 × $14 = $70,000 ÷ $28)
2,500
2,500
Shares for diluted earnings per share computation
42,500
Shares controlled by Primus: 40,000 + (28% of 2,500) = $40,700
Percentage of total held by Primus:( 40,700 ÷ 42,500) = 96% (95.76%)
income to be included in parent’s diluted EPS = $128,000 × 96% = $122,880
Primus Diluted Earnings Per Share:
Net income – Primus = $528,000
Net income included from sons ton = $122,880
Earnings for diluted EPS = $650,880
Outstanding shares of primus = 50,000
Primus DILUTED EARNINGS PER SHARE = $650,880 ÷ 50,000 = $13.01 per share
net income
$128,000
outstanding shares
40,000
assumed conversion of stock warrants
5,000
Repurchase of treasury stock with proceeds of stock Warrants (5,000 × $14 = $70,000 ÷ $28)
2,500
2,500
Shares for diluted earnings per share computation
42,500
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