Question: (EPS with Contingent Issuance Agreement) Brooks Inc. recently purchased Donovan Corp., a large mid western home Painting Corporation. One of the terms of the merger

(EPS with Contingent Issuance Agreement) Brooks Inc. recently purchased Donovan Corp., a large mid western home Painting Corporation. One of the terms of the merger was that if Donovan’s income for 2011 was $110,000 or more, 10,000 additional shares would be issued to Donovan’s stockholders in 2012. Donovan’s income for 2010 was $125,000.

(a) Would the contingent shares have to be considered in Brooks’s 2010 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 2011. Would the contingent shares have to be considered in Brooks’s earnings per share computations for 2010?

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