Question

On December 31, 2020, Berclair Inc. had 400 million shares of common stock and 7 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2021, Berclair purchased 60 million shares of its common stock as treasury stock. Berclair issued a 4% 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 $350 million.

Also outstanding at December 31 were 30 million incentive stock options granted to key executives on September 13, 2016. The options were exercisable as of September 13, 2020, for 30 million common shares at an exercise price of $35 per share. During 2021, the market price of the common shares averaged $70 per share.

The options were exercised on September 1, 2021.

Required:

Compute Berclair’s basic and diluted earnings per share for the year ended December 31, 2021. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Do not round intermediate calculations.)

	Numerator / Denominator = Earnings per Share Basic / = 0 Diluted / = 0

Answer 1

Basic EPS:

Earnings available for common shareholders:

= Net Income – Preference Share Holders Dividend

= $350– (7 * 100 * 9%)

= $350 - $63

= $287

Weighted Average shares of common stock outstanding:

	No. of Shares	Period		Average Shares
Common Stock	400	01-01-2021 to 12-31-2021	400 * 12/12	400
Treasury Stock Purchased	-60	03-01-2021 to 12-31-2021	60 * 10/12	-50
				350
Stock Dividend	6%	IAS 33( Earnings per share) ,states that bonus shares issued during the year are deemed to have been issued at the beginning of the year	350 * 6%	21
Treasury Stock Sold	4	10-01-2021 to 12-31-2021	4 * 3/12	1
Weighted Average Shares	372

Basic Earnings Per Share:

= Earnings for Common Shareholder / Avg Shares Outstanding

= 287/ 372

= $0.771 per share

Diluted EPS:

Based on Treasury Stock Method, it is assumed that proceeds received upon exercise ofooption is used to buy back stock at market price.

Proceed from exercise of option = 30 million options * $35

= $1050

Shares to be re-purchased = $1050/ $70 per share price

= 15 million shares.

Net increase in shares = 30 – 15 = 15 million (30 million options exercised and 15 million repurchased )

Diluted EPS:

= Earnings for Common Shareholder / Diluted Shares Holding

= 287/ (372 + 15)

= $0.742 per share

ANY DOUBTS OR CORRECTIONS?

JUST LEAVE A COMMENT BELOW

THANK YOU!