Brooks Inc. recently purchased Donovan Corp., a large midwestern home painting corporation. One of the terms of the merger was that if Donovan’s income for 2016 was \($110\),000 or more, 10,000 additional shares would be issued to Donovan’s shareholders in 2017. Donovan’s income for 2015 was \($125\),000.

Instructions

(a) Would the contingent shares have to be considered in Brooks’ 2015 earnings per share computations?

(b) Assume the same facts, except that the 10,000 shares are contingent on Donovan’s achieving a net income of \($130\),000 in 2016. Would the contingent shares have to be considered in Brooks’ earnings per share computations for 2015?