Exercise 19-16 EPS; stock dividend; nonconvertiblepreferred stock; treasury shar

Question

Exercise 19-16 EPS; stock dividend; nonconvertiblepreferred stock; treasury shares; shares sold; stock optionsexercised LO6 through LO8

On December 31, 2008, Berclair, Inc. had 200million shares of common stock and 3 million shares of 9%, $100 parvalue cumulative preferred stock issued and outstanding. Berclairissued a 5% common stock dividend on July 1, 2009. On March 1,2009, Berclair purchased 24 million shares of its common stock astreasury stock. Four million treasury shares were sold on October1. Net income for the year ended December 31, 2009, was $150million.

Also outstanding atDecember 31 were incentive stock options granted to key executiveson September 13, 2004. The options are exercisable as of September13, 2008, for 30 million common shares at an exercise price of $56per share. During 2009, the market price of the common sharesaveraged $70 per share, peaking at $80 on December 31.

input { text-align:right; } table.E19_16_class0 {border-collapse:collapse } td.E19_16_class1 { padding:0cm 6.0pt 0cm6.0pt } td.E19_16_class2 { background:#D7DCE6;padding:0cm 0cm 0cm6.0pt } td.E19_16_class3 { padding:0cm 0cm 0cm 6.0pt }td.E19_16_class4 { padding:0cm 3.0pt 0cm 6.0pt } td.E19_16_class5 {padding:0cm 6.0pt 0cm 1.5pt } td.E19_16_class6 {background:#F7F7F7;border-bottom:solid #336699 1.0pt;padding:0cm0cm 0cm 6.0pt } td.E19_16_class7 {background:#F7F7F7;border-bottom:solid #336699 1.0pt;padding:0cm3.0pt 0cm 6.0pt } td.E19_16_class8 { background:#F7F7F7;padding:0cm6.0pt 0cm 1.5pt } td.E19_16_class9 { border-bottom:solid #3366991.0pt;padding:0cm 0cm 0cm 6.0pt } td.E19_16_class10 {border-bottom:solid #336699 1.0pt;padding:0cm 3.0pt 0cm 6.0pt }table.E19_16a_class0 { border-collapse:collapse } td.E19_16a_class1{ padding:0cm 5.4pt 0cm 5.4pt } td.E19_16a_class2 {border-bottom:solid windowtext .5pt;padding:0cm 5.4pt 0cm 5.4pt }td.E19_16a_class3 { border-right:solid windowtext .5pt;padding:0cm5.4pt 0cm 5.4pt } td.E19_16a_class4 {border-top:none;border-top:solid windowtext.5pt;border-left:none;padding:0cm 5.4pt 0cm 5.4pt }td.E19_16a_class5 { border-top:none;border-right:solid windowtext.5pt;border-left:none;padding:0cm 5.4pt 0cm 5.4pt }

Exercise 19-16 EPS; stock dividend; nonconvertiblepreferred stock; treasury shares; shares sold; stock optionsexercised LO6 through LO8

On December 31, 2008, Berclair, Inc. had 200million shares of common stock and 3 million shares of 9%, $100 parvalue cumulative preferred stock issued and outstanding. Berclairissued a 5% common stock dividend on July 1, 2009. On March 1,2009, Berclair purchased 24 million shares of its common stock astreasury stock. Four million treasury shares were sold on October1. Net income for the year ended December 31, 2009, was $150million.

Also outstanding atDecember 31 were incentive stock options granted to key executiveson September 13, 2004. The options are exercisable as of September13, 2008, for 30 million common shares at an exercise price of $56per share. During 2009, the market price of the common sharesaveraged $70 per share, peaking at $80 on December 31.

The options were exercised on September 1,2009. Required: Compute Berclair’s basic and diluted earningsper share for the year ended December 31, 2009. Round your answers totwo decimal places. Omit the "$" sign in yourresponse. Basic earnings per share = $ Diluted earnings per share = $
Hint 1 |Hint 2 |Hint 3

Explanation / Answer

For purpose of Issue of stock dividend, no of shares O/s =200m-24m (Shares bought back as Treasury stock)= 176m 5% Common stock dividend = 5%*176m = 8.8m shares. 30m Shares craeted as a result of excercise of Options was notconsidered as it was after issue of common stock div. So Total shares o/S post stock dividend on 1 Jul 2009=176m+8.8m = 184.6m. Addl 30m shars were created on 1 Sep 2009 when option wasexcercised. So Total no of shares as on Dec 31, 2009 =184.6+30=214.6m
So EPS = Net Inc/No of shares outstanding =150m/214.6m = $0.70 per share .... ANS (1)
Diluted EPS = Net Inc/(No of sharesoutstanding+No of Prefered stock) =150m/(214.6m+3m) = 150m/217.6m =$0.689 per share... ANs (2)

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.