If convertible bonds are dilutive,the interest expense added back to the numerator in calculating diluted earnings per share is
A) net of tax,and includes discount and premium amortization.
B) net of tax,but does not include discount and premium amortization.
C) not net of tax,but includes discount and premium amortization.
D) not net of tax,and does not include discount or premium amortization.

Question

Quizplus · Accepted Answer

When calculating diluted earnings per share, convertible bonds are considered dilutive because they have the potential to convert into common stock, which would increase the number of shares outstanding. As a result, the interest expense associated with these bonds is added back to the numerator in the diluted EPS calculation.

The interest expense added back should be net of tax and should include discount and premium amortization. This is because these items represent expenses that were already recognized for accounting purposes but don't reflect the actual cash outflows related to the convertible bonds. So, to properly reflect the dilutive effect of the bonds, the interest expense added back should include these adjustments.

Therefore, choice A is the best answer.

If Convertible Bonds Are Dilutive,the Interest Expense Added Back to the Numerator