Question

In: Accounting

Which statement is FALSE? Select one: a. Diluted EPS is never higher than Basic EPS b....

Which statement is FALSE?

Select one:

a. Diluted EPS is never higher than Basic EPS

b. Use of the "Treasury Stock Method" determines the effect of convertible bonds on Diluted EPS

c. Bond interest expense is the cash interest paid plus the discount amortized that period

d. Bond interest expense is the cash interest paid less the premium amortized that period

Expert Solution

Requirement:- Which Statement is False?

Correct Answer:- (b) Use of the "Treasury Stock Method" determines the effect of convertible bonds on Diluted EPS.

Reasons:-

a. Diluted EPS is never higher than Basic EPS.

This statement is absolutely correct. Diluted EPS is always lower than Basic EPS.

b. Use of the "Treasury Stock Method" determines the effect of convertible bonds on Diluted EPS

This statement is Not Correct.

Treasury stock method is not used for convertible bonds. It can be used for repurchase of common shares.

c. Bond interest expense is the cash interest paid plus the discount amortized that period.

This statement is absolutely correct.

Journal entry would be:-

Account Titles and Explanation	Debit	Credit
Bond Interest Expense	XXX
Discount on bonds payable		XXX
Cash		XXX

d. Bond interest expense is the cash interest paid less the premium amortized that period.

This statement is absolutely correct.

Journal entry would be:-

Account Titles and Explanation	Debit	Credit
Bond Interest Expense	XXX
Premium on Bonds payable	XXX
Cash		XXX

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ekkarill92 answered 3 months ago

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