Question

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 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. 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).) NumeratorDenominator Earnings per Share Basic EPS Diluted EPS

Answer 1

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EPS Answer can be rounded as per question requirement, rounded to 2 decimal here: Basic DilutedS Explanation Basic EPS- Solution: 1&2) Denominator 547 559 Earning per share $1.58 $ 1.55 Numerator 864 1) Net profit for common stock Weighted Average number of outstanding Common Stock Particulars Net Income Weighted Average number of common stock: Amount 864 547 Shares Re-statement 1.05 1.05 1 Weights Weighted Av 95 181 135 136 547 Date 2/12 04/12 03/12 03/12 Jan.01,2018 Mar.01,2018 Jul.01,2018 Oct.01.2018 Total 540 516 541.8 545.8 Basic EPS- 1.58 Working notes: a For Basic: Amount 900 36 864 Net income Less: Preferred Stock Dividend (4*100)*9% Net income for Common Stock

b For Dilute: Amount Net income for basis EPS Add: Dilutive net income for common stock 864 (62.5*896) *60% 867 2) Net Profit for Common Equity (+) After Tax interest on Convertible debts (+) Convertible preferred dividends Weighted Average Common shares outstanding +All Dilutive potential Common stock Diluted EPS Particulars Net Income Weighted Average number of common stock including dilutive: Agreement meet the conditions, therefore Convertible bonds Weighted Average common stock outstanding Add: exercisable stock option (refer working below Total Amount S867 559 547 559 $1.55 Diluted EPS 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 (30*56) are used to buy back stock at average market price (1680/70) Net Increase in the number of shares- (30-24)- 1680 24 Million Shares 6 Million Shares Weighted Average number of 12 million till Sep.01 (12/12)*8 8 Million Shares