Question

all of the following statements about convertible preferred stock are true, except: a it can be converted into common stock b dividends must be paid on preferred stock before dividends may be paid on common stock c earnings per share will probably be reduced if the preferred stock is converted into common stock d the preferred stock may be called by the corporation

Answer 1

The false statement about convertible preferred stock is that earnings per share will probably be reduced upon conversion. In reality, earnings per share may increase due to elimination of fixed dividends on converted stock.

Step-by-step explanation:

All of the following statements about convertible preferred stock are true, except:

• It can be converted into common stock.
• Dividends must be paid on preferred stock before dividends may be paid on common stock.
• Earnings per share will probably be reduced if the preferred stock is converted into common stock (This statement is false).
• The preferred stock may be called by the corporation.

The false statement is that earnings per share will probably be reduced if the preferred stock is converted into common stock. Actually, earnings per share may increase if the preferred dividends are higher than the earnings attributed to the additional common shares issued upon conversion. This is because the conversion of preferred stock into common stock eliminates the requirement to pay fixed dividends on that preferred stock, thereby potentially increasing the earnings available to common shareholders.