Answer (A) is correct . The weighted-average number of shares outstanding must be increased to reflect the shares into which the bonds could be converted. Also, the effect of the bond interest on net income must be eliminated. In this way, earnings per share is calculated as if the bonds had been converted into common shares as of the start of the year.
Answer (B) is incorrect because The net income must be increased.
Answer (C) is incorrect because The weighted-average number of shares outstanding must be increased.
Answer (D) is incorrect because The weighted-average number of shares outstanding must be increased, and the net income must be increased.
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