On December 31, 2015, Berclair Inc. had 200 million shares of common stock and 3

Question

On December 31, 2015, Berclair Inc. had 200 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2016, Berclair purchased 24 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 S150 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 30 million common shares at an exercise price of S56 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. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Explanation / Answer

Answer Basic EPS = Net income- Preferred Dividend/Weighted avg number of share outstanding = 123/185.40 = $ 0.66 Diluted EPS = Net income- Preferred Dividend/Weighted avg number of share outstanding+stock option =123/195.40 = $ 0.63 Working Notes (million) 1 Net income 150 Preferred dividend = 3*100*9% 27 Net income after Preferred dividend 123 2 (million) Cumulative Month Share at begining 200.00 200.00 2 400.00 Purchase treasury share         (24.00)      176.00 4 704.00 Stock Dividend 8.80 184.80 3 554.40 Treasury share sold 4.00 188.80 3 566.40 Total Share outstanding 188.80 2224.80 Weighted avergae share capital 2224.80/12 185.40 3 (million) Cumulative Month Share at begining 200.00 200.00 2 400.00 Purchase treasury share         (24.00)      176.00 4 704.00 Stock Dividend 8.80 184.80 2 369.60 Stock option 30.00 214.80 1 214.80 Treasury share sold 4.00 218.80 3 656.40 Total Share outstanding 218.80 2344.80 Weighted avergae share capital 2344.80/12 195.40

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