1. A parent company and its 100%-owned subsidiary have only common stock outstanding (10,000 shares for the parent and 3,000 shares for the subsidiary), and neither company has issued other potentially dilutive securities. The equation to compute consolidated EPS for the parent company and its subsidiary is:
(a) ( Net income of parent + Net income of subsidiary ) ÷ 13,000 shares
(b) ( Net income of parent + Net income of subsidiary ) ÷ 10,000 shares
(c) Net income of parent ÷ 13,000 shares
(d) Net income of parent ÷ 10,000 shares
2. A parent company has a 90% interest in a subsidiary that has no potentially dilutive securities outstanding. In computing consolidated EPS:
(a) Subsidiary common shares are added to parent common shares and common share equivalents
(b) Subsidiary EPS and parent EPS amounts are combined
(c) Subsidiary EPS computations are not needed
(d) Subsidiary EPS computations are used in computing basic earnings
3. In computing a parent company’s diluted EPS, it may be necessary to subtract the parent’s equity in subsidiary realized income and replace it with the parent’s equity in subsidiary diluted earnings. The subtraction in this replacement computation is affected by:
(a) Constructive gain from purchase of parent bonds
(b) Current amortization from investment in the subsidiary
(c) Unrealized profits from downstream sales
(d) Unrealized profits from upstream sales