On 1120 Fox Co issued 6yr 400k 3 convertible bonds at 94 pay

On 1/1/20 Fox Co., issued 6-yr, $400k, 3% convertible bonds at 94, payable semi-annually and convertible into 8,000 shares of Fox Co. common stock Assume that Fox Co. uses straight-line amortization and is in the mid-point cf the 40% marginal income tax bracket. In determining diluted EPS, what\'s the per share effect of this bond for 2020? O $2.00 0 $.90 O $1.20 O $1.50 $.80

Solution

Answer to question 1:

Bond interest paid $12,000($400,000*3%)

No. Of convertible bonds=8,000

Diluted effect=$12,000/8000=$1.5

Hence the answer is option (d)

Answer to question 2:

The answer is optiona (b)

The term debt itself means it needs to be repaid over a period of time.

Hence the statement is false.

Answer to question 3:

The answer is option a

The error can be reported in the current period if it\'s not practically ppssposs to report it retrospectively.