When Preferred Stock Is Converted to Common Stock

question 16

Multiple Choice

When preferred stock is converted to common stock

• A) The debt-to-equity ratio decreases.
• B) The debt-to-equity ratio increases.
• C) The debt-to-equity ratio is unchanged.
• D) A gain or loss is reported in earnings for the difference between the fair value of the common stock and the book value of the preferred stock that was converted.

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Definitions:

Cost Information

Refers to data related to the amount of money required to produce goods or services, including production, maintenance, and other associated expenses.

Favorable

A term that indicates a positive variance or outcome, especially in the context of budgeting and financial analysis.

Unfavorable

A term often used in budgeting and financial analysis to describe results that are worse than expected or budgeted figures.

Variable Overhead Costs

Costs that fluctuate with changes in production volume or activity levels, such as utilities or raw materials, contrasting with fixed costs.