When Bonds Are Converted into Common Stock, the Carrying Value

question 192

True/False

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

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Definitions:

Zero-Coupon Bonds

Zero-coupon bonds are a type of bond that does not pay interest during its life and is instead sold at a discount to its face value, with the full face value being repaid at maturity.

Yield

Yield refers to the earnings generated and realized on an investment over a particular period, expressed as a percentage based on the investment's cost, current market value, or face value.

Face Value

The original value of a financial instrument as stated on the instrument itself, such as the principal value of a bond or the value printed on a stock certificate.

Zero-Coupon Bonds

Bonds that do not pay periodic interest payments but are issued at a deep discount and redeemable for their face value at maturity.