Question

On December 31, 2020, Berclair Inc. had 300 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. Berciair 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 $300 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, $500 million of 8% bonds, convertible into 6 million common shares, were issued at face value. Required: Compute Berciair'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.) Denominator Earnings per Share 0 Diluted < Prey. 8 of 10 Next >

Answer 1

Answer:

Basic Earnings Per Share = $299,640,000/291,858,904 shares = 1.03 per share

Diluted EPS =  $299,640,000/(291,858,904 + 6,000,000)  shares = 1.01 per share

Explanation:

300 million shares of common stock - 24 million Treasury Stock  = 276 million shares outstanding

CALCULATION OF WEIGHTED AVERAGE NUMBER OF SHARES

Date Shares             Weighting (months)           Weighted Average

Jan 1 276,000,000                12/12                               276,000,000

1st July  13,800,000(5% of 276) 6/12                                   6,900,000

13th Sept 30,000,000          109/365 days                  8,958,904.11

Total                                                                          291,858,904

Profit attributable to common shares  = Net Income $300,000,000 – (Preference Dividend of 0.09 x 4,000,000) $360,000 = $299,640,000

The formula for basic earnings per share is:

Profit or loss attributable to common equity holders of the parent business ÷

Weighted average number of common shares outstanding during the period

Basic Earnings Per Share = $299,640,000/291,858,904 shares= 1.03 per share

Diluted EPS will include $500 million of 8% bonds, convertible into 6 million common shares.

Diluted EPS =  $299,640,000/(291,858,904 + 6,000,000)shares  = 1.01 per share