75.9k views
0 votes
When convertible preferred stock is converted into common stock:______.

a. cash is debited.
b. a gain or loss can be recognized.

User Giwan
by
8.0k points

1 Answer

1 vote

Answer:

b. a gain or loss can be recognized.

Step-by-step explanation:

Convertible preferred stock is an option for shareholders with preferred shares where they have the choice of converting their preferred shares to common shares. The conversion is best done at a time when the common stock is above the conversion price. At this time, the stockholder can make a profit or gain. But if the common share is below the conversion price, the shareholder would most likely record a loss if he converts.

One disadvantage of this conversion process is that, once the preferred stock is converted to the common stock, the preferred shareholder gives up his rights as a preferred shareholder which includes no fixed dividends and higher claims on assets.

User Azal
by
8.2k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.