When Preferred Stock Is Converted to Common Stock

question 16

Multiple Choice

When preferred stock is converted to common stock

• A) The debt-to-equity ratio decreases.
• B) The debt-to-equity ratio increases.
• C) The debt-to-equity ratio is unchanged.
• D) A gain or loss is reported in earnings for the difference between the fair value of the common stock and the book value of the preferred stock that was converted.

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Definitions:

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