[thisismyname]

Can anyone explain in really simple terms why you would ADD the interest expense net of tax when you calculate diluted EPS for convertible bonds? You are paying this expense, so it would reduce net income, no? I think I am missing something really basic here….

[AndreA]

Basically you are saving that interest, because it's no longer bonds payable and that is why you should add the interest expense net of tax.

[thisismyname]

I'm an idiot…yeah, if you convert your bonds to stock retroactively to the beginning of the year, you wouldn't pay the bond interest anymore! That's why you add bond interest back to net income! Man I have my exam coming up in 4 weeks – no way I'm ready for this.

[AndreA]

I'm gonna retake mine in 3 weeks, you're ready just review everything again and this time focus on your weak areas, you'll pass.

[Nbmorty]

They might add an extra curveball here by giving you the bond discount/premium amortization (or ask you to calculate it by yourself like in f5), in that case simply add the (current year portion) of the discount back to the savings then make it net of tax, the logic here is that since the discount is basically a spread over loss you are saving more by not losing!
And vice-versa for the premium you have to subtract it coz you are saving less by converting the bonds you sold at a premium rather than on a discount.

My exam is in 3 days.. chuckles i'm in danger

[bigstakk]

I remember getting stuck on DEPS and after all the time I spent studying it I had max 1-2 basic MQCs on it when I took the exam. It can be hit or miss but I would just know the basic mechanics and calculation and if you are spending too much time on it and up against it just move on to the next chapter and come back to it during your final review. I would focus on the new rev rec, lease accounting, nonprofit/governmental and know consolidation and equity method well. You’ll be tested on IFRS so pay close attention to that differences to GAAP. Anything else will likely just be a random one off MCQs.

[Author]

Replies