The Usual Entry to Record the Conversion of Convertible Bonds

question 42

Multiple Choice

The usual entry to record the conversion of convertible bonds or preferred stock into common shares ignores _____ and shows the swap of common shares for bonds or preferred stock at their _____.

• A)current market prices; carrying value
• B)carrying value; current market prices
• C)current market prices; par value
• D)carrying value; par value
• E)present value of future cash flows; current market prices

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Definitions:

Dow Jones Industrial Average (DJIA)

An index in the stock market tracking the performance of 30 major companies traded on U.S. stock exchanges.

Blue Chip Stocks

Shares in large, reputable companies known for their ability to operate profitably in good and bad times.

Stock Splits

A corporate action that increases the number of a company's outstanding shares by dividing each share, which in turn reduces the price of each share, aiming to make shares more affordable.

Marginal Tax Bracket

The tax rate that applies to the last dollar of the taxpayer's income, indicating how much tax will be paid on any additional income earned.