Interest expense on convertible bonds that are dilutive is included in the numerator of the diluted earnings per share calculation at an amount equal to

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Interest expense on convertible bonds is adjusted for the tax effect because the interest expense is tax-deductible. Therefore, the amount included in the numerator for diluted EPS calculations is the interest expense adjusted by (1 - tax rate), to reflect the net cost after tax savings.

Interest Expense on Convertible Bonds That Are Dilutive Is Included