WP #13

T or F The recording of convertible bonds at the date of issue is the same as the recording of straight debt issues

True

the conversion of preferred stock is most commonly recorded by the: - market value method - incremental method - par value method - book value method

- book value method

The distribution of stock right to existing common stockholders will increase paid-in capital at the: - date of issuance of rights - date of exercise of rights - both the date of issuance of rights & date of exercise of rights - neither the date of issuance of rights or date of exercise of rights

- date of exercise of rights

Convertible bonds: -are usually secured by a first or second mortgage - have priority over other types of indebtedness - pay interest only in the event earnings are sufficient to cover the interest - may be exchanged for equity securities

- may be exchanged for equity securities

when additional consideration is offered to convertible bondholders to encourage conversion, the payment is called a(n): - end conversion - forced conversion - additional conversion - sweetener

- sweetener

The major difference between convertible debt and stock warrant is that upon exercise of the warrants: - no paid-in capital in excess of par can be a part of the transaction - the stock is held by the company for a defined period of time before they are issued to the warrant holder - the stock involved is restricted and can only be sold by the recipient after a set period of time - the holder has to pay a certain amount of cash to obtain the shares

- the holder has to pay a certain amount of cash to obtain the shares

The conversion of preferred stock into common requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be: - treated as a direct reduction of retained earnings - reflected currently in income as an extraordinary item - treated as a prior period adjustment - reflected currently in income but not as an extraordinary item

- treated as a direct reduction of retained earnings