Terrell Foods Reported $820,000 in Net Income (Not Considering Interest

question 19

Multiple Choice

Terrell Foods reported $820,000 in net income (not considering interest expense) and its weighted-average shares outstanding for the year is 200,000 shares. In prior years it sold $1,000,000 of 8% long-term convertible bonds at par which are still outstanding at the start of the year. The bonds are convertible into 40,000 shares of common stock. The tax rate for all years is 40%. Bondholders convert the bonds on July 1 of the current year. If Terrell has no other potentially dilutive securities and no preferred stock, what is the numerator for basic and diluted EPS? (Round your final answers to the nearest cent.)

• A) basic $796,000.00; diluted $820,000.00
• B) basic $820,000.00; diluted $796,000.00
• C) basic $844,000.00; diluted $844,000.00
• D) basic $796,000.00; diluted $844,000.00

---

Definitions:

Cash Flow Test

A financial analysis method to determine the liquidity of a company by measuring the cash it generates or uses in its operations.

Dividends

Payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders.

Revised Act

A legislative act that has been amended or updated from its original version to incorporate changes in law or policy.

Illegal Dividend

A payment made by a corporation to its shareholders that is not allowed by law or its own bylaws, typically because it exceeds the company's current or retained earnings.