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On December 31, 2020, Berclair Inc. had 220 million shares of common stock and 3 million...

On December 31, 2020, Berclair Inc. had 220 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 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 $180 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

Answer:

From the given data:

Net Income 180
Less: Preference dividend (100*9%*3) (27)
Net Income for EPS calculation 153
Date The weighted average number of equity shares
Dec 31, 2020 Common stock 220 Million shares
March 1st Treasury stock (24*10/12) (20) Million shares
July 1st 5% stock dividend (220-20)*5% 10 Million shares
Oct 1st Treasury stock (4*3/12) 1 Million shares
Weighted average number of equity shares as on Dec 31st ( For basic EPS) 211 Million shares
If stock options are exercised
Proceeds received = (30 million* 56) 1,680 Million
Treasury stock buyback = 1680/70 24 Million shares
Net increase in the number of shares (30-24) 6 Million shares
Weighted average number of equity shares as on Dec 31st ( For diluted EPS) 210 Million shares
Net Income
(1)		 Weighted number of shares
(2)		 EPS
(3 = 1/2)
Basic EPS 153 211 0.725
Diluted EPS 153 210 0.728




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ekkarill92 answered 1 year ago
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