When Convertible Preferred Stock Is Converted into Common Stock

question 47

Multiple Choice

When convertible preferred stock is converted into common stock:

• A)a gain or loss can be recognized.
• B)the preferred stock is removed from the books and the common stock accounts are credited for the prior book value of the preferred.
• C)cash is debited.
• D)none of the above occur.

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Definitions:

Currency Risk

The potential for financial loss resulting from fluctuations in exchange rates affecting investments or transactions in foreign currencies.

Foreign Bonds

Bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold. Thus, a Canadian firm selling bonds denominated in Swiss francs in Switzerland is selling foreign bonds.

Domestic Bonds

Bonds issued within a country's borders and typically denominated in that country's currency.

Market Rate of Interest

The prevailing rate of interest determined by supply and demand in the credit market that borrowers must pay to lenders.