If Preferred Stock, Which Can Be Exchanged for Long-Term Debt

question 24

Multiple Choice

If preferred stock, which can be exchanged for long-term debt in three years, is classified as an equity financial instrument instead of a liability, then

• A)the current ratio declines.
• B)earnings per share is less than if the preferred stock was reported as debt.
• C)fixed assets and net worth increase.
• D)the debt/equity ratio is less than if the preferred stock was reported as debt.

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Definitions:

Management Function

Activities performed by managers to plan, organize, lead, and control resources to achieve organizational goals.