On December 31, 2015, Berclair Inc. had 480 million shares of common stock and 1

Question

On December 31, 2015, Berclair Inc. had 480 million shares of common stock and 18 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2016, Berclair purchased 120 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2016. four million treasury shares were sold on October 1. Net income for the year ended December 31, 2016, was $900 million.

     Also outstanding at December 31 were incentive stock options granted to key executives on September 13, 2011. The options were exercisable as of September 13, 2015, for 63 million common shares at an exercise price of $60 per share. During 2016, the market price of the common shares averaged $70 per share.

The options were exercised on September 1, 2016.

Required: Compute Berclair’s basic and diluted earnings per share for the year ended December 31, 2016.

Explanation / Answer

Solution:

(A). Caluculation of Dilutated Earning Per Share:   

  Earning Per Share = $ 9,00,000 - 0 / 4,80,000

   = $ 1.875

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