Brush Inc. recently purchased Paint Pro, a large home-painting corporation. One of the terms of the merger was that if Paint Pro's net income for 2018 was $110,000 or more, 10,000 additional shares would be issued to Paint's shareholders in 2019. Paint Pro's net income for 2017 was $120,000.
Instructions
(a) Would the contingent shares have to be considered in Brush's 2017 earnings per share calculations?
(b) Assume the same facts, except that the 10,000 shares are contingent on Paint Pro achieving a net income of $130,000 in 2018. Would the contingent shares have to be considered in Brush's earnings per share calculations for 2017?
(c) Provide support for the accounting treatment of the contingent shares discussed in part (a), referring to the conceptual framework.