Complete Problem 6-4 on page 364 of Advanced Accounting to calculate basic and diluted
consolidated earnings per share.
Complete Problem 6-6 on page 365 of Advanced Accounting to prepare a consolidated
worksheet for taxation, simple equity, inventory, and land.
Problem 6-4 (LO 2) 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
5% convertible (into Sunny’s shares), $100 par
preferred shares, outstanding during the year
Nonconvertible preferred shares outstanding 2,000 1,000
800 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: First quarter Average
$10 Second quarter 12 Third quarter
Fourth quarter 13
16 Required
Compute the basic and diluted consolidated EPS for the year ended December 31, 2018. Use quarterly
share averaging. Problem 6-6 (LO 3) 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: Inventory, December 31
Other Current Assets
Investment in Salty Company
Land
Buildings and Equipment
Accumulated Depreciation
Current Liabilities
Long-Term Liabilities
Common Stock
Paid-In Capital in Excess of Par
Retained Earnings
Sales
Cost of Goods Sold
Operating Expenses
Subsidiary Income Pepper Company
100,000
198,000
302,000
240,000
300,000
(80,000)
(150,000)
(200,000)
(100,000)
(180,000)
(320,000)
(500,000)
300,000
100,000
(40,000) Salty Company
50,000
200,000
100,000
200,000
(60,000)
(50,000)
(100,000)
(50,000)
(100,000)
(150,000)
(300,000)
180,000
80,000 Gain on Sale of Land
Dividends Declared
Totals 30,000
0 (10,000)
10,000
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.

 

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