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Exercise 19-19 (Algo) EPS; stock dividend; nonconvertible preferred stock; treasury shares; shares sold; stock options; convertible...

Exercise 19-19 (Algo) 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, 2020, Berclair Inc. had 340 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 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 $400 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.)

Solutions

Expert Solution

Numerator / Denominator = EPS
Basic EPS $346 / 337 = $1.03
Diluted EPS $349 / 349 = $1.00

Basic EPS:-

Numerator
Net Income $400
Preferred Dividend $      (54)
$346
Denominator
Opening Outstanding shares with stock Dividend (340*1.05*12/12) 357
Purchased Treasury stock with Stock Dividend (24*1.05*10/12) -21
Issued New shares (4 * 3/12) 1
337

Diluted EPS

Numerator
Net Income $400
Preferred Dividend $      (54)
After tax interest saving (50 * 8% * 75%) $           3
$349
Denominator
Opening Outstanding shares with stock Dividend (340*1.05*12/12) 357
Purchased Treasury stock with Stock Dividend (24*1.05*10/12) -21
Issued New shares (4 * 3/12) 1
Exercise of option [30 - (30*56/70)] 6
Conversion of Bonds 6
349

ekkarill92 answered 1 year ago
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