Question

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 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.

What is the basic and diluted EPS by Dec 31, 2018?

Answer 1

Earning Per share Numerator Denominator Weighted Average # Net income / Shares 902 519 902 535 = Basic EPS Diluted EPS Earning Per share 1.74 1.69

Net income LESS: Preferred Dividend ( 100*9%*22) Net income For EPS Calculation 1100 198 902 Date weighted Average Number of Equity Shares December 31st 2017 Common stock 500 Million Shares March 1st Treasuray Stock ( 30*10/12) -25 Million Shares July 1st 4% Stock Dividend (500-25)*4% 19 Million Shares Sep-01 options Excercised (72*4/12) 24 Millona Shares Oct 1st Treasuary Stock ( 4*3/12) 1 Million Shares Weighted Average Shares as on Dec 31st ( For Basic) 519 Million Shares Proceeds received = (72 Millions *$60) 4320 Millions Buyback the Treasury stock = 4320/90 48 Million Shares Net increase in the Number of Shares (72-48)*8/12 16 Million Shares Weighted Average Stock (For Diluted EPS) 535 Million Shares