Terrell Foods reported $950,000 in net income and its weighted average shares outstanding for the year is 200,000 shares. In prior years it sold $2,000,000 of 8% long-term bonds at par which are still outstanding. The bonds are convertible into 50,000 shares of common stock. The tax rate for all years is 40%. If Terrell has no other potentially dilutive securities and no preferred stock, what are

basic and diluted EPS?

A) basic EPS $4.75; diluted EPS $4.18
B) basic EPS $5.34; diluted EPS $4.18
C) basic EPS $4.75; diluted EPS $3.80
D) basic EPS $5.34; diluted EPS $3.80

Answer: A