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Exercise 19-18 EPS; stock dividend; nonconvertible preferred stock; treasury shares; shares sold; stock options exercised (LO19-5, 19-6, 19-7, 19-8) 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 31 were 63 million incentive stock options granted to key executives on September 13, 2013. The options were exercisable as of September 13, 2017, for 63 million common shares at an exercise price of $60 per share. During 2018, the market price of the common shares averaged $70 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 (ie.. 10,000,000 should be entered as 10).) Basic EPS Diluted EPS Numerator $ 574 $ 574 1 1 1 Denominator 340 302 = = = Earnings per Share $ $ 1.90

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Solution: 1&2) EPS Answer can be rounded as per question requirement, rounded to 2 decimal here: Numerator I Denominator Earning per share Basic $ 574 $ 340 $ 1.69 Diluted $ 574 $ 346 = $ 1.66 Explanation: Basic EPS = Net profit for common stock Weighted Average number of outstanding Common Stock Particulars Net Income Weighted Average number of common stock: $ Amount 574 340 Weights Weighted Av. Date Jan.01,2018 Mar.01,2018 Jul.01,2018 Sep.01,2018 Oct.01.2018 Total Shares Re-statement 400 1.06 280 1.06 297 1 360 2/12 04/12 02/12 01/12 03/12 364 Basic EPS = $ 1.69 a) For Basic: Net income Less: Preferred Stock Dividend (14*100)*9% Net income for Common Stock Amount 700 126 574

2) Net Profit for Common Equity (+) After Tax interest on Convertible debts Diluted EPS = (+) Convertible preferred dividends Weighted Average Common shares outstanding + All Dilutive potential Common stock Particulars Net Income Weighted Average number of common stock including dilutive: $ Amount 574 346 340 Agreement meet the conditions, therefore: Weighted Average common stock outstanding Add: exercisable stock option (refer working below) Total 346 Diluted EPS $ 1.66 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 (63"60) are used to buy back stock at average market price (3780/70) Net Increase in the number of shares = (63-54) = Weighted Average number of 15 million till Sep.01 (9/12)*8 3780 54 Million Shares 9 Million Shares 6 Million Shares