Question

On December 31, 2020, Berclair Inc. had 250 million shares of common stock and 10 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2021, Berclair purchased 90 million shares of its common stock as treasury stock. Berclair issued a 4% common stock dividend on July 1, 2021. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2021, was $500 million Also outstanding at December 31 were 45 million incentive stock options granted to key executives on September 13, 2016. The options were exercisable as of September 13, 2020, for 45 million common shares at an exercise price of $50 per share. During 2021, the market price of the common shares averaged $75 per share. The options were exercised on September 1, 2021. Required: Compute Berclair's basic and diluted earnings per share for the year ended December 31, 2021. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Do not round intermediate calculations.)

Answer 1

basic eps
calculation of weighted average no of shares
				(in millions)
shares issued	particulars	time	weighted ratio	total shares
250	total issued	1st january to 31 december	12/12	250
-90	buyback of treasury shares	1st march to 31 st december	10/12	-75.00
				175.00
		adjustment for dividend @ 4%	175*1.04	182
4	sold shares	1st october to 31 st december	3/12	1
		weighted average no of shares		183
	basic eps=	net income - preferred dividend
		weighted no of shares
		$500-10*100*9%
		183
		$500-$90
		183
		2.240437158

diluted eps
while computing diluted method we assume that they will be converted as of beginning of year though they are not converted
in this problem potential dilutive shares are stock options
	treasury shares =	45 million shares *$50	$2250
proceeds received upon exercise are used to buy back of shares
		proceeds received
		market price
		$2250/75
		30 million shares
net increase in shares		(45 millions -30 million shares	15 million
dilutes eps		net income - preferred dividend
		weighted average shares + net increase through options
		$500-$90
		183+15
		2.070707071