Question

On December 31, 2020, Berclair Inc. had 300 million shares of common stock and 8 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2021, Berclair purchased 54 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2021. Nine million treasury shares were sold on October 1. Net income for the year ended December 31, 2021, was $400 million. Required: Compute Berclair's 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).)

Answer 1

Answer: $1.21

Explanation:

Earnings per share = (Net income - Preferred dividends) / Weighted average number of common shares outstanding

Weighted average number of shares outstanding:

Opening = 300 million shares

Treasury stock on March 1 = 54 million * (10 / 12 months) = 45 million shares

Share balance = 300 - 45  = 255 million shares

Dividend to be added = 255 * ( 1 + 5%) = 267.75 shares

Add Treasury stock sold = 267.75 + (9 million * 3/12 months)

= 270 million shares

Earnings per share = (400 - (8 * 9% * 100) ) / 270

= $1.21