When Bonds Are Converted into Common Stock the Carrying Value

question 94

True/False

When bonds are converted into common stock the carrying value of the bonds is transferred to paid-in capital accounts.

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Definitions:

M&M Proposition I

A theory stating that, in a perfect market, the value of a firm is unaffected by how it is financed, regardless of the debt-to-equity ratio.

Capital Structure

Refers to the way a corporation finances its assets through a combination of equity, debt, or hybrid securities.

M&M Proposition I

Modigliani and Miller's principle suggesting the irrelevance of financial leverage on a company's valuation in an ideal market.

Debt-Equity Ratio

A calculation of a firm's financial leverage determined by dividing its overall liabilities by the equity of its shareholders.