Brooks Inc. recently purchased Donovan Corp., a large midwestern home painting company. One of the terms of the merger was that if Donovan's income for 2020 was $110,000 or more, 10,000 additional shares would be issued to Donovan's shareholders in 2021. Donovan's income for 2019 was $125,000.
Instructions
a. Would the contingent shares have to be considered in Brooks' 2019 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 2020. Would the contingent shares have to be considered in Brooks' earnings per share computations for 2019?