Question

On December 31, 2017, Berclair Inc. had 500 million shares of common stock and 19 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 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 $950 million. Also outstanding at December 31 were 72 million incentive stock options granted to key executives on September 13, 2013. The options were exercisable as of September 13, 2017, for 72 million common shares at an exercise price of $60 per share. During 2018, the market price of the common shares averaged $90 per share. The options were exercised on September 1, 2018. Required: Compute Berclair's basic and diluted earnings per share for the year ended December 31, 2018. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) Numerator 1 Denominator = Earnings per Share Basic EPS Diluted EPS

Answer 1

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Solution: 1&2) EPS Answer can be rounded as per question requirement, rounded to 2 decimal here: Numerator Denominator Earning per share Basic $ 779 441 = $ 1.77 Diluted $ 779 $ 457 $ 1.70 1) Explanation: Net profit for common stock Basic EPS = Weighted Average number of outstanding Common Stock Particulars Net Income Weighted Average number of common stock: Amount 779 $ 441 Date Jan.01,2018 Mar.01,2018 Jul.01,2018 Sep.01,2018 Oct.01.2018 Total Shares Re-statement 500 1.04 380 1.04 395 04/12' 1 Weights Weighted Av. 2/12 87 132 02/12 01/12 39 03/12 118 441 66 467 1 471 Basic EPS = $ 1.77 a) For Basic: Net income Less: Preferred Stock Dividend (19*100)*9% Net income for Common Stock Amount 950 171 779

Net Profit for Common Equity (+) After Tax interest on Convertible debts (+) Convertible preferred dividends Diluted EPS = Weighted Average Common shares outstanding + All Dilutive potential Common stock Particulars Net Income Weighted Average number of common stock including dilutive: $ Amount 779 457 441 Agreement meet the conditions, therefore: Weighted Average common stock outstanding Add: exercisable stock option (refer working below) Total 16 457 $ 1.70 4320 Meet the condition, because exercise price is less than average market price: Treasury stock method will be used: According to this method, proceed received up on exercise (72"60) are used to buy back stock at average market price (4320/90) Net Increase in the number of shares = (72-48) = Weighted Average number of 15 million till Sep.01 (9/12)*24 48 Million Shares 24 Million Shares 16 Million Shares