I'm stuck on this question and if you could just guide me in right direction I will be appreciated. I'm keep it short and you shouldn't need more information, if you do just ask.
If a company issued convertible bonds in 2008 that cannot be converted into common stocks until September of 2011, and the question asked me to compute the proper earnings per share for 2010. So my question is, do I have to show the potential diluted EPS in 2010 even though the potential to dilute EPS will not occur until 2011? Or do you only show the potential diluted effect in 2011 when the securities can be converted into common stock?
My book isn't very clear it only states "The if-converted method assumes: 1) the conversion of the convertible securities at the beginning of the period (or at the time of issuance of the security, if issued during the period), and 2) the elimination of related interest net of tax."
I can't tell if that means you must dilute EPS as long as the security is outstanding (regardless of when it can be converted) or you dilute EPS in the period in which securities are now available to be converted. In my problem the diluted security was not issued during 2010 (question asked proper EPS for 2010) nor is it available for conversion.
Thanks to anyone that can clear this up for me.