If Convertible Preferred Shares Are Converted into Common Shares

question 126

Multiple Choice

If convertible preferred shares are converted into common shares,

• A) a gain on conversion must be recorded if the legal capital of the preferred shares is greater than the legal capital of the common shares.
• B) a loss on conversion must be recorded if the legal capital of the preferred shares is less than the legal capital of the common shares.
• C) a gain or loss on conversion is not recorded.
• D) the fair value of the preferred shares on the date of conversion is credited to the Common Shares account.

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Definitions:

Initial Deposit

The first sum of money placed into an account to open it or start an investment.

Nominal Interest Rate

The stated interest rate on a loan or investment, not accounting for compounding or inflation effects.

Compounded Monthly

A method of calculating interest where the accumulated interest is added to the principal sum each month, leading to an increase in the amount of subsequent interest accrued.

Financing

The process of providing funds for business activities, making purchases, or investing.