Question

On December 31, 2017, Berclair Inc. had 600 million shares of common stock and 17 million...

On December 31, 2017, Berclair Inc. had 600 million shares of common stock and 17 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 120 million shares of its common stock as treasury stock. Berclair issued a 6% 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 $850 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. Required: Compute Berclair’s basic and diluted earnings per share for the year ended December 31, 2018.

Homework Answers

Answer #1

Basic EPS

Basic EPS = (Net income - Preference dividend) / weighted average common shares

To calculate weighted average common shares outstanding

Shares issued in million Outstanding Total
600 12/12 (Jan - Dec) 600
-120 10/12 (Mar - Dec) -100
Retroactive Adjustment for 6% Dividend 530
4 3/12 (OCt - Dec) 1
Weighted average common shares 531

Computation of preference dividend

17 x $100 x 9% = 153 million

Hence,

Basic EPS = (Net income - Preference dividend) / weighted average common shares

EPS = (850 - 183)/531

= $1.31

Diluted EPS

Determine the treasury shares

$72 million shares x $60 per shares = $4320 million

$4320 / $90 market price = $48 million shares

Therefore the stock option would be

72 million - 48 million = 24 million

hence, diluted EPS = (850 - 153)/ (531 + 24)

= $1.25

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On December 31, 2017, Berclair Inc. had 560 million shares of common stock and 5 million...
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 168 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 $1,050 million. Also outstanding at December...
On December 31, 2017, Berclair Inc. had 360 million shares of common stock and 3 million...
On December 31, 2017, Berclair Inc. had 360 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 88 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 $550 million. Also outstanding at December...
On December 31, 2017, Berclair Inc. had 420 million shares of common stock and 6 million...
On December 31, 2017, Berclair Inc. had 420 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 112 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 $700 million. Also outstanding at December...
On December 31, 2020, Berclair Inc. had 580 million shares of common stock and 6 million...
On December 31, 2020, Berclair Inc. had 580 million shares of common stock and 6 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2021, Berclair purchased 176 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2021. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2021, was $1,100 million. Also outstanding at December...
On December 31, 2020, Berclair Inc. had 200 million shares of common stock and 3 million...
On December 31, 2020, Berclair Inc. had 200 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2021, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2021. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2021, was $150 million. Also outstanding at December...
On December 31, 2020, Berclair Inc. had 380 million shares of common stock and 4 million...
On December 31, 2020, Berclair Inc. had 380 million shares of common stock and 4 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2021, Berclair purchased 96 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2021. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2021, was $600 million. Also outstanding at December...
On December 31, 2015, Berclair Inc. had 400 million shares of common stock and 5 million...
On December 31, 2015, Berclair Inc. had 400 million shares of common stock and 5 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2016, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2016. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2016, was $550 million. The income tax rate...
On December 31, 2020, Berclair Inc. had 420 million shares of common stock and 6 million...
On December 31, 2020, Berclair Inc. had 420 million shares of common stock and 6 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2021, Berclair purchased 112 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2021. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2021, was $700 million. Also outstanding at December...
On December 31, 2020, Berclair Inc. had 300 million shares of common stock and 8 million...
On December 31, 2020, Berclair Inc. had 300 million shares of common stock and 8 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2021, Berclair purchased 54 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2021. Nine million treasury shares were sold on October 1. Net income for the year ended December 31, 2021, was $400 million. Required: Compute Berclair's earnings...
On December 31, 2015, Berclair Inc. had 460 million shares of common stock and 9 million...
On December 31, 2015, Berclair Inc. had 460 million shares of common stock and 9 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2016, Berclair purchased 48 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2016. Eight million treasury shares were sold on October 1. Net income for the year ended December 31, 2016, was $800 million. Required: Compute Berclair's earnings...