Question

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On December 31, 2017, Berclair Inc. had 300 million shares of common stock and 13 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 $650 million. Also outstanding at December 31 were 60 million incentive stock options granted to key executives on September 13, 2013. The options were exercisable as of September 13, 2017, for 60 million common shares at an exercise price of $60 per share. During 2018, the market price of the common shares averaged $80 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 (i.e., 10,000,000 should be entered as 10).) Numerator 1 Denominator = Earnings per Share Basic EPS Diluted EPS

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Answer 1

300 Million Shares Common Stock 9% Preferred Stock Weighted Avergage No. of shares outstanding Date No. of Months Particuars (million) 1-Jan 300 Balance 1-Mar-30 Tresury Shares calculations Weighted Shares 12 300*12/12 300 10 -30*10/12 -25 1-Jul 4% commonstock dividend 12 4%*300*12/12 Bonus shares issued during the 12 year are deemed to be issued at the beginning of the year. 1-Oct 4 Tresury shares sold 34*3/12 Weighted Average No. of Shares 288 650 Million Net Income Less: Preferred Dividend 9%*100*13 117 Million 533 Net Income available for common stock holders Weighted Average No. of Shares Basic EPS 288 533/288 Basic EPS 1.85069

Share Option 60 million shares Exercise price 60 per share 60*60 million 3600 million Therefore, no. of shares at average market price = 3600 million / 80 = 45 million shares No. of shares without consideration = 60-45 = 15 million shares Diluted EPS = Net income available for common stockholders / Weighted no. of shares +shares issued without consideration Diluted EPS = 533/( 288+ 15 ) = 533/ 303 = 1.75908

Net Income Less: Interest Net Income Before Tax Tax @ 40% Net Income After Tax Less: preferrence Dividend 880000 10% * 1000000 100000 780000 312000 468000 34800*5 174000 294000 Net Income available for Common shareholder Basic EPS = Net Income available for Common shareholder / No of common shares = 294000/100000 = 2.94 per share t Income to calculate Diluted Earnings = Net Income Less: Interest Net Income Before Tax Tax @ 40% Net Income After Tax Less: preferrence Dividend 880000 Interest and preferresnce o dividend will not 880000 be deducted from 352000 the net income, 528000 these will be converted into 0 common stocks in 528000 Net Income available for Common shareholder Basic EPS = Net Income available for Common shareholder / No of common shares + No. of convertible shares into common shares = 528000 / (100000 + 70000 + 20000) = 528000 / 190000 = 2.77895 per share