Question

Exercise 19-19 EPS; stock dividend; nonconvertible preferred stock; treasury shares; shares sold; stock options, convertible bonds [LO19-5,19-6, 19-7, 19-8, 19-9) On December 31, 2017. Berclair Inc. had 260 million shares of common stock and 6 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 $200 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 (.e. 10,000,000 should be entered as 10).) Numerator Denominator Earnings per Share Basic EPS Diluted EPS

Answer 1

On Dec 31 2017 Beacair in bad Requid BASIC EPS Diluteal EPS Nome cito F 146 F 149 / Denominatoy 1 253 - / 265 Farning per share $ 0.58 $ 0.56 Explanation (1) Weighted Average No of shores : 11 - 12/31 311 - 12/31 10/1 - 12/ 31 260mnx 12/12 X 1.05 24 mny 10/12 X 1.05 amnX 3/10 273 23:2/21) 253 mn - Stock Dive It 5% = 1.05 3 prefshore Div. 6 mn share x 9%X s 100 $54mn 3 Basic EPS Net Income - prep div AVG common stock outstanding $54 $200 - 253 5 146 = 253 = $0.58 pes shave

- Diluted EPS : so only diluttve (1 Here, pace stocks are security is Stock non convertible option (2) Fiast always check If fair market value are the securities 7 exercise price dilutive or not It is dilutive 56 (exercise price) Her $70 (Fala market) > s the store security is dilutive Treasury stock method: of the date 1 Exercise is assumed to take place at the later of issue ie 913117 or Beginning of the year it is 1/2018 2 The Treasury stock method assume that the proceed received upon exercise Of are used to buy back Stock at ang market price 30 mon 124 mnc received upon exercise 30x356) - 1680) Buy back is 1680 & 70) Net Increase in stock * convertible Bonds Bond Netor tax: (62.5 X 80 X 1-60% Tax Rate) s 3 mn share issued on conversion 6 mm

=) Now Bonds are dilutive if : c EPS without conversion unt. Net of tax shares issued $ 356 0200-54). 253 +6 0.5 0.56 : The afore it is dilutive pilurive EPS - 200 - 54 + 3 (Add back bond int.) 253+ 6 + 6 = 149 265 -16 0.56res share]