Purchaser Inc. recently purchased Target Corp., a large home-painting corporation. One of the terms of the merger was that if Target's net income for 2015 was $110,000 or more, 10,000 additional shares would be issued to Target's shareholders in 2016. Target's net income for 2014 was $120,000.
Instructions
(a) Would the contingent shares have to be considered in Purchaser's 2014 earnings per share calculations?
(b) Assume the same facts, except that the 10,000 shares are contingent on Target achieving a net income of $130,000 in 2015. Would the contingent shares have to be considered in Purchaser's earnings per share calculations for 2014?
(c) Provide support for the accounting treatment of the contingent shares discussed in part (a), referring to the conceptual framework.