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On January 1, 2012, Peanut Corporation acquires an 80% interest in Sunny Corporation. Information regarding the income and equity structure of the two companies as of the year ended December 31, 2014,...

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On January 1, 2012, Peanut Corporation acquires an 80% interest in Sunny Corporation. Information regarding the income and equity structure of the two companies as of the year ended December 31, 2014, is as follows:

Peanut Corp. Sunny Corp.

Internally generated net income $55,000 $56,000

Common shares outstanding during the year 20,000 12,000

Warrants to acquire Peanut stock, outstanding during the year 2,000 1,000

5% convertible (into Sunny's shares) $100 par preferred shares

Outstanding during the year 800

Nonconvertible preferred shares outstanding 1,000

Additional information is as follows:

a) The warrants to acquire Peanut stock are issued in 2013. Each warrant can be exchanged for one share of Peanut common stock at an exercise price of $12 per share.

b) Each share of convertible preferred stock can be converted into two shares of Sunny common stock. The preferred stock pays an annual dividend totaling $4,000. Peanut owns 60% of the convertible preferred stock.

c) The nonconvertible preferred stock is issued on July 1, 2014, and pays a 6-month dividend totaling $500.

d) Relevant market prices per share of Peanut common stock during 2014 are as follows:

Average

First quarter $10

Second quarter 12

Third quarter 13

Fourth quarter 16

Compute the basic and diluted consolidated EPS for the year ended December 31, 2014. Use quarterly share averaging.

Answered Same Day Dec 29, 2021

Solution

David answered on Dec 29 2021
92 Votes
Subsidiary calculations:
Basic EPS = (56000-4000 prefe
ed div)/12000 = $4.22
Diluted EPS = (52000+4000 Prefe
ed Div)/(12000+1600^)= $4.12
^ Prefe
ed Stock is dilutive. So $4000/1600 = $2.50
Shares = 800 Prefe
ed shares*2 Common shares
Consolidated calculations:
Basic EPS =...
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