Winnifred Inc. recently purchased Hanover Corp., a large home-painting corporation. One of the terms of the merger was that, if Hanover’s income for 2011 were $110,000 or more, 10,000 additional shares would be issued to Hanover’s shareholders in 2012. Hanover’s income for 2010 was $120,000.
Instructions
(a) Would the contingent shares have to be considered in Winnifred’s 2010 earnings per share calculations?
(b) Assume the same facts, except that the 10,000 shares are contingent on Hanover achieving a net income of $130,000 in 2011. Would the contingent shares have to be considered in Winnifred’s earnings per share calculations for 2010?