Final answer:
When a convertible bondholder converts their bonds into common stock, the long-term debt on the company's balance sheet decreases, and the common stock increases option (c), reflecting the shift from debt to equity.
Step-by-step explanation:
When a convertible bondholder converts their bonds into common stock, this impacts the company's financial statements in specific ways:
- Long-term debt (LT debt) - Decreases because the convertible bonds are being turned into equity, which reduces the outstanding debt obligations.
- Common stock - Increases as the convertible bonds are exchanged for new shares of common stock, increasing the number of shares outstanding.
A company might choose different methods to access financial capital, such as borrowing from a bank, issuing bonds, or issuing stock. Each method has its advantages and disadvantages, like maintaining control over operations when borrowing instead of being subject to shareholders when issuing stock.