Question

On December 31, 2020, Berclair Inc. had 440 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 120 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 $750 million.

Also outstanding at December 31 were 30 million incentive stock options granted to key executives on September 13, 2013. The options were 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.

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.)

SHOW ALL STEPS PLEASE

Answer 1

Solution

Net income for EPS collection

= Net income - preferred dividend

=$750- $27(100*9%*3)

=$723

Weighted average number of equity share for basic earnings per share

Date	weighted average number of Equity share
31st December2020	common stock	440 million shares
1st march	treasury stock (-120*10/12)	-100 million shares
1st July	5% stock dividend (440-100)*5%	17 million shares
1st October	treasury stock (4*3/12)	1 million share
	Weighted average as on Dec 31st ( for basic)	358 million share

Weighted average stock for diluted EPS

IF stock option are excercised
Proceeds received	1680(30 million*56)
Buyback the treasury stock	24 million share (30 million *56)
Net increase in the number of shares	6 million shares (30-24)
Weighted average stock ( for diluted EPS)	364 million shares

	Numerator	÷	Denominator	earning per share
Basic EPS	723	÷	358	2.02
Diluted EPS	723	÷	364	1.99