Poison Corporation holds 70 percent of Snake Company’s voting common shares but none of its preferred shares. Summary balance sheets for the companies on December 31, 20X1, are as follows:

Poison Corporation Snake Company
Assets
Cash $20,000 $29,000
Accounts Receivable 32,000 42,000
Inventory 120,000 74,000
Buildings and Equipment 295,000 215,000
Less: Accumulated Depreciation (138,000) (63,000)
Investment in Snake Company 123,900
Total Assets $452,900 $297,000
Liabilities and Owners’ Equity
Accounts Payable $77,900 $64,000
Wages Payable 40,000
Preferred Stock 100,000 56,000
Common Stock ($10 par value) 120,000 100,000
Retained Earnings 115,000 77,000
Total Liabilities and Owners’ Equity $452,900 $297,000

Neither of the preferred issues is convertible. Poison’s preferred pays a 9 percent annual dividend and Snake’s preferred pays a 10 percent dividend. Snake reported net income of $52,000 and paid a total of $21,000 of dividends in 20X1. Poison reported $65,000 of income from its separate operations and paid total dividends of $47,000 in 20X1.

Required:
Compute 20X1 consolidated EPS. Ignore any tax consequences. (Round your answer to 2 decimal places.)

Consolidated Basic EPC = [ (Parent Adjusted Net Income generated Internally - Parent Preferreed Stock Dividend) + (Parent Owned Subsidiary Common shares * Subsidiary EPS) ] / Parent Common shares outstanding

Therefore Consolidated EPS of Poison Corp = [(65,000 - 9,000) + (7,000 shares * 4.64)} / 12,000 shares

= (56,000 + 32,550) / 12,000 shares

= $7.3781

=$7.38

chilljain33 chilljain33 · Answer 2 · 2021-12-31T10:37:35+01:00

The consolidated Earnings per Share (EPS) for Poison Corporation for the year 2021 will be $7.9 per share.

Earnings per Share (EPS) are the amount of profits or gains a company earns over its common total stock outstanding in the market and subscribed fully.

We know that the Earnings Per Share can be calculated as using the following formula for the Poison Corporation which is a holding company of Snake Corporation holding its 70% equity.

[tex]\rm Earnings\ per\ Share= \dfrac{Total\ Net\ Earnings}{Total\ Stock\ Outstanding}[/tex]

We can calculate the no. of shares of Snake Co. held by Poison Corp by the following method.

[tex]\rm Total\ holdings\ in\ Snake\ Co.= 0.70\ x\ 10000[/tex]

We can say that Poison Co. holds 7000 shares in Snake Co. Now we can calculate the adjusted net income as ,

[tex]\rm Adjusted \ net\ Income\ after\ Dividends= 65000-9000[/tex]

So the net adjusted income for Poison Corp will be $56,000 and the adjusted net income of Snake Co. will be $46800 (52000-5600).

EPS of Snake Co. will be,

[tex]\rm EPS= \dfrac {46400}{10000}\\\\\\\rm EPS = 4.64[/tex]

EPS of Poison Corp will be ,

[tex]\rm EPS\ of\ Poison= \dfrac {56000}{12000}\\\\\\\rm EPS\ of\ Poison = 4.66[/tex]

So now as we know that Poison holds 70% in Snake Co. we can say that their share in Snake Co. will be ,

[tex]\rm EPS\ of\ Poison\ in\ Snake= 0.70\ x\ 4.64\\\\\\ EPS\ of\ Poison\ in\ Snake= 3.24[/tex]

Now adding the values of EPS of Poison standalone and the EPS of Poison in Snake Co. we get ,

[tex]\rm Consolidated\ EPS\ Of\ Poison\ Corp.= EPS\ standalone+ EPS\ in\ Snake\ Co.\\\\\\\rm Consolidated\ EPS\ Of\ Poison\ Corp.= 4.66+3.24\\\\\\\rm Consolidated\ EPS\ Of\ Poison\ Corp.=7.9[/tex]

Hence, the consolidated EPS of Poison Corp will be $7.9 per share.

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