If convertible bonds were issued at a discount, when computing diluted EPS, the amortization of the bond discount:
A) Will have no effect.
B) Will decrease the numerator.
C) Will increase the numerator.
D) May increase or decrease the numerator, depending on the amortization method used.

Question

Quizplus · Accepted Answer

The amortization of the bond discount increases the numerator in the diluted EPS calculation because it increases the interest expense, which, after adjusting for taxes, reduces the net income available to common shareholders, thereby increasing the diluted EPS.

If Convertible Bonds Were Issued at a Discount, When Computing