Calculating Diluted EPS: Contingent Shares

In Year 1, Xonacs acquired Realtest Service. The acquisition agreement included a commitment by Xonacs to the shareholders of Realtest that if Year 2 net income exceeded $150,000, an additional 30,000 shares of Xonacs stock would be issued to the shareholders in Year 3. Realtest's net income in Year 1 was $153,000.

Required

a. How many contingent shares would Xonacs recognize in its calculation of Year 1 diluted EPS?

shares

b. Suppose Realtest's earnings in Year 1 were $120,000. How many contingent shares would Xonancs recognize in its calculation of Year 1 diluted EPS?

shares