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 480 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 $750 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).)

Answer 1

Basic EPS	(A/B)=	$                  1.46
Net income	750
Less:pref div	45
0.09*100*5
Numerator(A)	705
		Stock dividend		time
Common stock	480	105.00%	504	12/12	504
Less:treasury stock	-24	105.00%	-25.2	10/12	-21
Add:new shares	4			3/12	1
Denominator(B)					484
Diluted EPS	(A/B)=	$                  1.43
Net income	750
Add:Debenture interest(net of tax)	3
62.5*0.08*(1-0.4)
Less:pref div	45
0.09*100*5
Numerator(A)	708
		Stock dividend		time
Common stock	480	105.00%	504	12/12	504
Less:treasury stock	-24	105.00%	-25.2	10/12	-21
Add:new shares	4			3/12	1
Asssumed Exercise of options	30-24		6	12/12	6
debentures	6			12/12	6
Denominator(B)					496
30	million shares
56	(exercise price)
1,680	million
70	(average market price)
24	million shares