Please include formulas and step by step calculations. Thanks! On December 31, 2
ID: 2542526 • Letter: P
Question
Please include formulas and step by step calculations. Thanks!
On December 31, 2017, Berclair Inc. had 360 million shares of common stock and 3 million shares of 990, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2018, Eight million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $450 million. The income tax rate is 40%. Also outstanding at December 31 were incentive stock options granted to key executives on September 13, 2013. The options are exercisable as of September 13, 2017, for 30 million common shares at an exercise price of S40 per share. During 2018, the market price of the common shares averaged S50 per share. In 2014 $64 million of 1090 bonds, convertible into 8 million common shares, were issued at face value. Required: Compute Berclair's basic and diluted earnings per share for the year ended December 31, 2018.Explanation / Answer
SOLUTION
Basic EPS = Net Income / Weighted average no. of shares of common stock outstanding
Net Income = Net income - Preferred dividend
= $450 million - $27 million = $423 million
Preffered dividend = (9% * $100 = $9 / share * 3 million) = $27 million
Weighted average no. of shares of common stock outstanding-
Basic EPS = $423 million / 359 million
= $1.18
Diluted EPS-
Interest not paid = [($64 million * 10%)* 60%] = $3.84 million
Net income = $423 million + $3.84 million = $426.84 millions
The Treasury Stock Method assumes that the proceeds received upon exercise of $1,200 (30 million * $40) are used to buy back stock at the average market price, i.e., $1,200 / $50 = $24
The net increase in the number of shares = 6 million (30 million issued upon exercise - 24 million repurchased)
Weighted average no. of shares = 359 + 6 + 8 = 373 million
Diluted EPS = $426.84 millions / 373 million = $1.14
Period Calculation No. of shares 1/1 - 12/31 360 * 12/12 *1.05 378 3/1 - 12/31 24 * 10/12 * 1.05 (21) 10/1 - 12/31 8 * 3/12 2 Weighted average no. of shares 359