Question

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 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 $500 million. The income tax rate is 25%.

Also outstanding at December 31 were incentive stock options granted to key executives on September 13, 2016. The options are exercisable as of September 13, 2020, for 30 million common shares at an exercise price of $56 per share. During 2021, the market price of the common shares averaged $70 per share. In 2017, $50.0 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, 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

Answer 1

sollution

Statement showing calculation of EPS for the year ended 31 dec ,2021
Particulars ($)	Working	Basic EPS	working	Diluted EPS
Net income	Given	$500.00	Given	$500.00
Less: Preferred Dividend	$400*9%	$36.00		$36.00
Numerator(a)		$464.00		$464.00
Weighted average number of common shares outstanding	step 1	379		379
Additional shares issued If options exercised (in-the-money)		–	Step-2	6
Additional shares issued if Bond converted				6
Denominator(b)		379		391
EPS(a/b)		$1.22		$1.19
Basic EPS=(Net Income – Preferred dividends)/ Weighted average number of common shares outstanding
Diluted EPS=(Net Income – Preferred dividends)/ (Weighted average number of common shares outstanding+Diluted shares)
Step -1 Calculating weighted average number of shares outstanding:
Particulars	Working	No of Share
common stock outstanding (1/1/2021 – 31/12/2021)	380 million x (12/12) *1.05	399
Treasury shares purchased (1/3/2021 – 31/12/2021)	(24) million x (10/12) *1.05	-21
Treasury shares sold (1/10/2021– 31/12/2021)	(4) million x (3/12)	1
The weighted average number of shares	379
Step-2 Additional shares issued If options exercised (in-the-money)(Diluted share )
1. Amount paid to exercise the options=	option issued *exercise price per share
30*56	1680
2. Value of option in current share =	Amount paid to exercise the options/Current share price
1680/70	24
3.Diluted share =	option issued-value of option in current share
30-24	6