CAF-6 · Chapter 11 · Question 2 of 15
How is the 'incremental earnings' calculated for a convertible bond when determining diluted EPS?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The interest expense saved, net of tax.
Explanation
For convertible bonds, the assumption of conversion means the company would save the interest expense. This saved interest, strictly net of tax, is added back to earnings.
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