On December 31, 2017, Berclair Inc. had 520 million shares of
common stock and 3 million shares of 9%, $100 par value cumulative
preferred stock issued and outstanding. On March 1, 2018, Berclair
purchased 24 million shares of its common stock as treasury stock.
Berclair issued a 5% common stock dividend on July 1, 2018. Four
million treasury shares were sold on October 1. Net income for the
year ended December 31, 2018, was $850 million. The income tax rate
is 40%.
Also outstanding at December 31 were incentive stock options
granted to key executives on September 13, 2013. The options are
exercisable as of September 13, 2017, for 30 million common shares
at an exercise price of $56 per share. During 2018, the market
price of the common shares averaged $70 per share.
In 2014, $62.5 million of 8% bonds, convertible into 6 million
common shares, were issued at face value.
Compute Berclair’s basic and diluted earnings per share for the year ended December 31, 2018.
Answer -
Step - (1) - Information Given -
On December 31, 2017, Berclair Inc. had -
On March 1, 2018, Berclair purchased 24000000 shares of its common stock as treasury stock.
Berclair issued a 5% common stock dividend on July 1, 2018
4000000 treasury shares were sold on October 1
Net income for the year ended December 31, 2018, was $850000000. The income tax rate is 40%.
Also outstanding at December 31 were incentive stock options granted to key executives on September 13, 2013. The options are exercisable as of September 13, 2017, for 30000000 common shares at an exercise price of $56 per share. During 2018, the market price of the common shares averaged $70 per share.
In 2014, $62500000 of 8% bonds, convertible into 6000000 common shares, were issued at face value.
.
Step - (2) - Calculation of Weighted average of shares
= (Number of shares as treasury stock * Period)
= 24000000 shares * 10/12
= 20000000 shares.
.
Step - (3) - Calculation of Stock dividend shares -
= (Number of shares held - Weighted average of treasury stock)* Stock dividend %
= (520000000 shares - 20000000 shares) * 5%
= 25000000 shares.
.
Step - (4) - Calculation of Weighted average of shares -
= Number of treasury stock * Time period
= 4000000 shares * 3/12
= 1000000 shares.
.
Step - (5) - Calculation of Weighted average number of Common shares outstanding -
| Particulars | Calculations / Remarks | Number of shares | |
| A. | Weighted average number of shares held on December 31, 2017 | Given in question | 520000000 |
| B. | Weighted average number of treasury stock bought | As per step - (2) | (20000000) |
| C. | Weighted average number of stock dividend shares distributed | As per step - (3) | 25000000 |
| D. | Weighted average number of treasury stock sold | As per step - (4) | 1000000 |
| Weighted average number of Common shares outstanding | (A - B + C + D) | 526000000 | |
.
Step - (6) - Calculation of Preferred dividends -
= (Number of shares * par value per share) * Dividend rate
= (3000000 shares * $100 per share) * 9%
= $27000000
.
Step - (7) - Calculation of Basic Earnings per share for the year ended December 31, 2018 -
= (Net income - Preferred dividends) / Weighted average no. of common shares outstanding
= ( $850000000 - $27000000 [As per step-(6)] ) / 526000000 Shares [As per step-(5)]
= $1.5646 per share.
.
Step - (8) - Calculation of Exercisable options value -
= Number of shares * Exercise price
= 30000000 shares * 56 per share
= $1680000000.
.
Step - (9) - Calculation of Number of shares assumed re-acquired -
= Exercisable options / Average market price per share
= $1680000000 / $70
= 24000000 shares
.
Step - (10) - Calculation of Adjusted Weighted average number of Common shares outstanding -
| Particulars | Calculations / Remarks | Number of shares | |
| A. | Weighted average number of shares held on December 31, 2017 | Given in question | 520000000 |
| B. | Weighted average number of treasury stock bought | As per step - (2) | (20000000) |
| C. | Weighted average number of stock dividend shares distributed | As per step - (3) | 25000000 |
| D. | Weighted average number of treasury stock sold | As per step - (4) | 1000000 |
| E. | Number of exercisable options granted as shares | Given in question | 30000000 |
| F. | Number of shares assumed reacquired with the fund raised with stock options | As per step - (9) | (24000000) |
| Adjusted Weighted average number of Common shares outstanding | (A - B + C + D + E - F) | 532000000 | |
.
Step - (11) - Calculation of Diluted Earnings per share for the year ended December 31, 2018 -
= (Net income - Preferred dividends) / Adjusted Weighted average number of Common shares outstanding
= ( $850000000 - $27000000 [As per step-(6)] ) / 532000000 Shares [As per step-(10)]
= $1.5469 per share.
On December 31, 2017, Berclair Inc. had 520 million shares of common stock and 3 million...
On December 31, 2017, Berclair Inc. had 540 million shares of common stock and 4 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $900 million. The income tax rate...
On December 31, 2017, Berclair Inc. had 500 million shares of common stock and 22 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 30 million shares of its common stock as treasury stock. Berclair issued a 4% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $1,100 million. Also outstanding at December...
On December 31, 2017, Berclair Inc. had 300 million shares of common stock and 13 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 30 million shares of its common stock as treasury stock. Berclair issued a 4% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $650 million. Also outstanding at December...
On December 31, 2017, Berclair Inc. had 400 million shares of common stock and 14 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 120 million shares of its common stock as treasury stock. Berclair issued a 6% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $700 million. Also outstanding at December...
On December 31, 2017, Berclair Inc. had 500 million shares of common stock and 23 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 60 million shares of its common stock as treasury stock. Berclair issued a 6% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $1,150 million. Also outstanding at December...
On December 31, 2017, Berclair Inc. had 300 million shares of common stock and 9 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 120 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $450 million. Also outstanding at December...
On December 31, 2017, Berclair Inc. had 600 million shares of common stock and 16 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 30 million shares of its common stock as treasury stock. Berclair issued a 4% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $800 million. Also outstanding at December...
On December 31, 2017, Berclair Inc. had 580 million shares of common stock and 6 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 176 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $1,100 million. Also outstanding at December...
On December 31, 2017, Berclair Inc. had 560 million shares of common stock and 5 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $950 million. The income tax rate...
On December 31, 2017, Berclair Inc. had 500 million shares of common stock and 22 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 30 million shares of its common stock as treasury stock. Berclair issued a 4% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $1,100 million. Also outstanding at December...