When Bonds Are Converted into Common Stock

question 130

Multiple Choice

When bonds are converted into common stock

• A) the market price of the stock on the date of conversion is credited to the Common Stock account.
• B) the market price of the bonds on the date of conversion is credited to the Common Stock account.
• C) the market price of the stock and the bonds is ignored when recording the conversion.
• D) gains or losses on the conversion are recognized.

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Definitions:

Deferred Taxes

Taxes applicable to income that is earned in one period but not payable until a future period due to differences between accounting and tax reporting.

FASB

The Financial Accounting Standards Board, the organization responsible for establishing and improving financial accounting standards in the United States.

Present Value Approach

A method to determine the current worth of a future sum of money or stream of cash flows given a specified rate of return.

Installment Sales Method

An accounting method that recognizes revenue when payments are actually received rather than at the point of sale.