contestada

On December 31, 2020, Berclair Inc. had 600 million shares of common stock and 7 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. Berclair 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 $1,050 million. The income tax rate is 25%.


Also outstanding at December 31 were 30 million incentive stock options granted to key executives on September 13, 2016. The options were 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.


Required:

Compute Berclair's basic and diluted earnings per share for the year ended December 31, 2021.

Respuesta :

ogbe2k3

Answer:

The diluted EPS is $1.65

Explanation:

Solution

The Numerator (Basic EPS):

The Net income = $1,050 million

The Preferred dividends= 3mn * 9% * $ 100 = $ 27 million

because the preferred stock is cumulative, the dividend is deducted whether or not paid)

The Denominator (Basic EPS): Weighted average Number of shares

Now,

common stock outstanding (1/1 – 12/31)  600 million x (12/12) *1.05  = 630 million

The Treasury shares purchased (3/1 – 12/31)  (24) million x (10/12) *1.05  =(21) million

The  shares  treasury sold  (10/1 – 12/31)  (4) million x (3/12)  =1

The average  weighted number of shares  =610 million

so,

Basic EPS = ($1,050-27) ÷ 610 = $1.68

Stock Options

The stock choice are dilutive because exercise price is lesser than market price of $ 70 per share.

By applying the treasury stock method.

Exercise is supposed to take place at the later of the date of issue (9/13/21) or the beginning of the year (1/1/21). Assume exercise 1/1/21

The Treasury Stock Method suggests that the proceeds received upon exercise of $1,680 (30 million x $56) are used to purchase back stock at the market price average, for example  $1,680 ÷ $70 = 24 million

The net goes higher in the number of shares = 6 million  (30 million issued upon exercise – 24 million repurchased)

Convertible Bonds

By applying method if bonds are transformed into common stock.  however,a step by step approach to calculate nature of dilution. is determined

Now,

The shares issued on conversion = 6 million

The Interest paid, net of tax = $3 [(8% x $50) x 75%]

The Interest per shares issued = 3/6 = $ 0.5 per share

The EPS without assumed conversion = ($1,050 - $27+3) ÷ (610 + 6+6) = $1.65

The convertible bonds are dilutive because $1.65 is less than $1.68

Therefore, diluted EPS = ($1,050 - $27+3) ÷ (610 + 6+6) = $1.65

When the Berclair's basic and diluted earnings per share for the year ended December 31, 2021, Then, The diluted EPS is = $1.65

Computation of Tax Rate

The Numerator (Basic EPS):

Then, The Net income is = $1,050 million

After that, The Preferred dividends is = 3mn * 9% * $ 100 = $ 27 million

because When the preferred stock is cumulative, Then, the dividend is deducted whether or not paid)

When The Denominator (Basic EPS): Weighted average Number of shares

Now, When the common stock outstanding (1/1 – 12/31) 600 million x (12/12) *1.05 is = 630 million

When The Treasury shares purchased (3/1 – 12/31) (24) million x (10/12) *1.05 is = (21) million

Although, The shares treasury sold (10/1 – 12/31) (4) million x (3/12) =1

When The average weighted number of shares is = 610 million

so,

The Basic EPS is = ($1,050-27) ÷ 610 = $1.68

Then the Stock Options are:

When The stock choice is dilutive because the exercise price is lesser than the market price of $ 70 per share.

Now, By applying the treasury stock method.

The Exercise is supposed to take place at the later date of issue (9/13/21) or the beginning of the year (1/1/21). Then, Assume exercise 1/1/21

After that, The Treasury Stock Method suggests that the proceeds received upon exercise of $1,680 (30 million x $56) are used to purchase back stock at the market price average, for example, $1,680 ÷ $70 is = 24 million

When The net goes higher the number of shares is = 6 million (30 million issued upon exercise – 24 million repurchased)

Now, Convertible Bonds

Then, By applying the method if bonds are transformed into common stock. however, When a step by step approach to calculating the nature of dilution. is determined

Now,

The shares issued on conversion is = 6 million

The Interest paid, net of tax is = $3 [(8% x $50) x 75%]

The Interest per shares issued is = 3/6 = $ 0.5 per share

The EPS without assumed conversion is = ($1,050 - $27+3) ÷ (610 + 6+6) = $1.65

After that, The convertible bonds are dilutive because $1.65 is less than $1.68

Thus, diluted EPS = ($1,050 - $27+3) ÷ (610 + 6+6) = $1.65

Find more information about Tax Rate here:

https://brainly.com/question/26410519

Otras preguntas