Question

On December 31,2023 , Berclair Incorporated had 480 million shares of common stock and 5 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. - On March 1, 2024, Berclair purchased 136 million shares of its common stock as treasury stock. - Berclair issued a 5% common stock dividend on July 1,2024. - Four million treasury shares were sold on October 1. - Net income for the year ended December 31, 2024, was $850 million. - Also outstanding at December 31 were 30 million incentive stock options granted to key executives on September 13,2019. - The options were exercisable as of September 13, 2023, for 30 million common shares at an exercise price of $56 per share. - During 2024 , 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, 2024. (Shares for stock options and conversion of convertible securities have been adjusted for any stock split or stock dividend.) Note: Do not round intermediate calculations. Enter your answers in millions (i.e., 10,000,000 should be entered as 10 ).

Answer 1

To calculate Berclair Incorporated's basic and diluted earnings per share for the year ended December 31, 2024, you need to consider the number of shares and the net income. The basic earnings per share is $4.89, while the diluted earnings per share is $4.64.

Step-by-step explanation:

To calculate Berclair Incorporated's basic and diluted earnings per share for the year ended December 31, 2024, we need to consider the number of shares and the net income. Let's break down the calculations:

Basic Earnings Per Share:

Step 1: Calculate the weighted average number of common shares outstanding:

Shares outstanding on December 31, 2023: 480 million

Shares repurchased on March 1, 2024: 136 million

Shares sold on October 1, 2024: 4 million

Weighted average shares outstanding = (480 million - 136 million + 4 million) / 2 = 174 million

Step 2: Calculate basic earnings per share:

Basic earnings per share = Net income / Weighted average shares outstanding = $850 million / 174 million = $4.89

Diluted Earnings Per Share:

Step 1: Calculate the diluted weighted average number of common shares outstanding:

Diluted weighted average shares outstanding = Weighted average shares outstanding + Shares from stock options exercise

• Shares from stock options exercise = Shares exercisable * (Market price - Exercise price) / Market price
• Shares exercisable = 30 million
• Market price = $70 per share
• Exercise price = $56 per share

Diluted weighted average shares outstanding = 174 million + (30 million * ($70 - $56) / $70) = 183 million

Step 2: Calculate diluted earnings per share:

Diluted earnings per share = Net income / Diluted weighted average shares outstanding = $850 million / 183 million = $4.64