Sunland Corporation acquired Novak Inc. and agreed to issue an additional 49,400 shares to Novak’s former shareholders in 2027 if Novak’s net income in 2026 reaches at least $593,000. Novak’s net income in 2025 was $617,000.

For 2025, Sunland reported net income of $1,498,000 and had an average of 506,000 common shares outstanding. I’m unsure how the contingent shares should be treated in the 2025 EPS calculation, since the performance condition is tied to future earnings (2026), even though Novak exceeded a similar income level in 2025.

Should these potentially issuable shares be included in basic EPS, diluted EPS, or excluded entirely for 2025?

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