When a bondholder converts a convertible bond the
When a bondholder converts a convertible bond, the effects on the corporation’s subsequent financial statements will include a:
A. An increase in tax expense and an increase to the debt-to-equity ratio.
B. An increase in tax expense and a decrease to the debt-to-equity ratio.
C. A decrease in tax expense and an increase to the debt-to-equity ratio.
参考解答
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2024-11-07 12:42:56
Ans:B.
Since interest is tax deductible, it will decrease tax expense while the bonds are outstanding. When the debt is converted to equity, the reduced interest deduction will increase tax expense. When the debt is converted to equity, the numerator of the debt-to-equity ratio will be reduced and the denominator will be increased. The debt-to-equity ratio will be reduced as a result.
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