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(Solution) - EPS with Contingent Issuance Agreement Brooks Inc

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(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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