Peter Corporation Owns 90% of the Common Stock of Subsidiary

question 16

Essay

Peter Corporation owns 90% of the common stock of Subsidiary Subway.The following data is available:
The preferred stock is cumulative and convertible.The annual preferred dividends are $10,000.
Required:
1.Subway's preferred stock is convertible into 12,000 shares of Subway's common stock.Peter and Subway do not have any other potentially dilutive securities outstanding.
a.What is Subway's basic EPS and diluted EPS?
b.What is consolidated basic EPS and diluted EPS?
2.Subway's preferred stock is convertible into 12,000 shares of Peter's common stock.Peter and Subway do not have any other potentially dilutive securities outstanding.What is consolidated basic EPS and diluted EPS?

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Definitions:

Crowding-Out Effect

The phenomenon where increased government spending leads to a reduction in private sector spending and investment due to higher interest rates or other factors.

Government Spending

The total amount of public expenditure by a government, including spending on defense, education, public infrastructure, and welfare programs.

Private Investment

The expenditure on capital goods by private sector firms or individuals in order to generate future income or profits, excluding government spending.

Crowding-In Effect

An increase in private sector spending stimulated by federal budget deficits financed by U.S. Treasury borrowing.