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.
(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?