Problem - Consolidated EPS
On January 1, 2016, 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, 2018, is as follows:
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Peanut Corporation
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Sunny Corporation
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Internally generated net income
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$55,000
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$56,000
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Common shares outstanding during the year
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20,000
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12,000
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Warrants to acquire Peanut stock, outstanding during the year
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2,000
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1,000
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5% convertible (into Sunny's shares), $100 par preferred shares, outstanding during the year
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800
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Nonconvertible preferred shares outstanding
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1,000
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Additional information is as follows:
a. The warrants to acquire Peanut stock are issued in 2017. 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, 2018, and pays a 6-month dividend totaling $500.
d. Relevant market prices per share of Peanut common stock during 2018 are as follows:
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Average
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First quarter
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$10
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Second quarter
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12
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Third quarter
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13
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Fourth quarter
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16
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Required - Compute the basic and diluted consolidated EPS for the year ended December 31, 2018. Use quarterly share averaging.
Problem - Worksheet, consolidated taxation, simple equity, inventory, land
On January 1, 2015, Pepper Company purchases 80% of the common stock of Salty Company for $270,000. On this date, Salty has total owners' equity of $300,000. The excess of cost over book value is due to goodwill. For tax purposes, goodwill is amortized over 15 years.
During 2015, Pepper appropriately accounts for its investment in Salty using the simple equity method.
During 2015, Pepper sells merchandise to Salty for $50,000, of which $10,000 is held by Salty on December 31, 2015. Pepper's gross profit on sales is 40%.
During 2015, Salty sells some land to Pepper at a gain of $10,000. Pepper still holds the land at year-end. Pepper and Salty qualify as an affiliated group for tax purposes and, thus, will file a consolidated tax return. Assume a 30% corporate income tax rate.
The following trial balances are prepared on December 31, 2015:
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Pepper Company
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Salty Company
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Inventory, December 31
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100,000
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50,000
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Other Current Assets
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198,000
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200,000
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Investment in Salty Company
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302,000
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Land
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240,000
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100,000
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Buildings and Equipment
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300,000
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200,000
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Accumulated Depreciation
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(80,000)
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(60,000)
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Current Liabilities
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(150,000)
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(50,000)
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Long-Term Liabilities
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(200,000)
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(100,000)
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Common Stock
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(100,000)
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(50,000)
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Paid-In Capital in Excess of Par
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(180,000)
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(100,000)
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Retained Earnings
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(320,000)
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(150,000)
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Sales
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(500,000)
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(300,000)
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Cost of Goods Sold
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300,000
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180,000
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Operating Expenses
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100,000
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80,000
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Subsidiary Income
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(40,000)
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Gain on Sale of Land
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(10,000)
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Dividends Declared
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30,000
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10,000
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Totals
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0
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0
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Required - Prepare a consolidated worksheet for Pepper Company and subsidiary Salty Company for the year ended December 31, 2015. Include the determination and distribution of excess schedule and the income distribution schedules.