What is Contingently issuable shares?
In short
Contingently issuable shares are shares to be issued for little or no cash if conditions are met, such as reaching an earnings target. They are included in basic earnings per share only once the conditions are satisfied.
Key takeaways
- For diluted earnings per share, they are included if the conditions would be met if the end of the period were the end of the contingency period.
- Shares issuable only after time passes are treated as outstanding.
- Earnouts in business combinations often create them.
Where it's tested
FAR: Equity & Earnings Per Share — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company has net income of $600,000 and paid $50,000 in dividends on cumulative preferred stock during the year, none of which were declared. What amount should be used as the numerator for basic EPS?