Brush Inc. recently purchased Paint Pro, a home-painting corporation. One of the terms of the merger was
Question:
Brush Inc. recently purchased Paint Pro, a home-painting corporation. One of the terms of the merger was that, if Paint Pro’s net income for 2024 was $110,000 or more, 10,000 additional shares would be issued to Paint Pro’s shareholders in 2025. Paint Pro’s net income for 2023 was $120,000.
Instructions
a. Would the contingent shares have to be considered in Brush’s 2023 earnings per share calculations?
b. Use the same facts, but assume that the 10,000 shares are contingent on Paint Pro achieving a net income of $130,000 or more in 2024. Would the contingent shares have to be considered in Brush’s earnings per share calculations for 2023?
c. Provide support for the accounting treatment of the contingent shares discussed in part (a), referring to the conceptual framework.
Step by Step Answer:
Intermediate Accounting Volume 2
ISBN: 9781119740445
13th Canadian Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy