Reference no: EM131620979

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:

	Peanut Corporation	Sunny Corporation
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 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:

	Average
First quarter	$10
Second quarter	12
Third quarter	13
Fourth quarter	16

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:

	Pepper Company	Salty Company
Inventory, December 31	100,000	50,000
Other Current Assets	198,000	200,000
Investment in Salty Company	302,000
Land	240,000	100,000
Buildings and Equipment	300,000	200,000
Accumulated Depreciation	(80,000)	(60,000)
Current Liabilities	(150,000)	(50,000)
Long-Term Liabilities	(200,000)	(100,000)
Common Stock	(100,000)	(50,000)
Paid-In Capital in Excess of Par	(180,000)	(100,000)
Retained Earnings	(320,000)	(150,000)
Sales	(500,000)	(300,000)
Cost of Goods Sold	300,000	180,000
Operating Expenses	100,000	80,000
Subsidiary Income	(40,000)
Gain on Sale of Land		(10,000)
Dividends Declared	30,000	10,000
Totals	0	0

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.