Question

On December 31, 2017, Berclair Inc. had 560 million shares of common stock and 5 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 $950 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.

FIND THE DILUTED EARNINGS PER SHARE.

(I have already found the basic eps= 905/568)

Answer 1

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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 $ 905 $ 568 $ 1.59 Diluted $ 908 $ 580 $ 1.57 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 905 568 Shares Re-statement Weights Weighted Av. 560 1.05 2/12 98 Date Jan.01,2018 Mar.01,2018 Jul.01,2018 Oct.01.2018 Total 536 562.8 566.8 1.05 1 1 04/12 03/12 03/12 188 141 Basic EPS = 1.59 Working notes: a) For Basic: Net income Less: Preferred Stock Dividend (5*100)*9% Net income for Common Stock Amount 950 45 905

b) For Dilute: Amount 905 Net income for basis EPS Add: (62.5*8%)*60% Dilutive net income for common stock 908 2) 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 $ Amount 908 580 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 568 580 Diluted EPS $ 1.57 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