Asked by Samende Kamana on Jul 29, 2024
Verified
According to APB Opinion No.14, when convertible preferred stock is issued, the conversion provision is
A) given no consideration
B) assigned a value based on the difference between the par value and the fair market value of the stock on the date of issuance
C) assigned a value based on the difference between the stated value of the stock and the market value on the date of issuance
D) assigned a value based on the difference between the fair market value of the stock without the conversion provision and the fair market value of the stock with the conversion provision
Convertible Preferred Stock
A type of preferred stock that offers the option to convert into a specified number of common shares, usually after a predetermined date.
APB Opinion No.14
An accounting guideline issued by the Accounting Principles Board addressing the accounting for convertible securities and the exercise of conversion options in financial statements.
Conversion Provision
A clause in a security or loan that allows the holder to convert into a different security, typically common stock, under certain conditions.
- Explain the process of converting preferred shares into common shares.
Verified Answer
LP
Leywes PierreJul 30, 2024
Final Answer :
A
Explanation :
APB Opinion No. 14 specifies that when convertible preferred stock is issued, the conversion feature is given no consideration in the accounting process. This means that the financial reporting does not assign a separate value to the conversion provision.
Learning Objectives
- Explain the process of converting preferred shares into common shares.