3044 Chapter 15A

What is "convertible preferred stock"?

• Preferred stock that can be exchanged for a fixed number of common shares at the holder's option

• Common stock that pays a fixed dividend like preferred stock

• Preferred stock that pays dividends in additional shares instead of cash

• Preferred stock that automatically converts into common stock at maturity

How do non-detachable stock warrants affect the accounting treatment of bonds issued with them?

• The entire proceeds from the bond issuance are recorded as a liability

• The warrants are treated separately and recorded as equity

• A portion of the proceeds is allocated to the warrants based on fair value

• The company records the warrants as a liability and amortizes their value

When detachable stock warrants are issued with bonds, how are they accounted for?

• The entire proceeds are allocated to the bonds, and the warrants are ignored

• The proceeds are allocated between the bond liability and equity based on fair value

• The value of the warrants is recorded as a liability and amortized over the bond’s life

• The warrants are expensed immediately as a stock-based compensation cost

Which of the following best describes a stock warrant?

• A contractual right that allows the holder to purchase a company's stock at a fixed price for a certain period

• A mandatory obligation for an investor to buy company stock at a future date

• A debt instrument that automatically converts into common stock upon maturity

• A type of preferred stock that pays dividends in stock instead of cash

When convertible preferred stock is converted into common stock, how should it be accounted for under the book value method?

• The carrying amount of the preferred stock is reclassified to common stock and additional paid-in capital

• A gain or loss is recognized based on market value at the time of conversion

• The preferred stock remains on the balance sheet until it is retired

• The company records a liability equal to the fair value of the common stock issued

When a convertible bond is converted into common stock, how should the issuing company account for it under the book value method?

• Recognize a gain or loss based on market value

• Remove the bond liability and recognize additional paid-in capital with no gain or loss

• Revalue the bonds at fair market value before conversion

• Record the stock issuance at par value only

When accounting for convertible bonds at issuance, how is the bond's value typically recorded under U.S. GAAP?

• Entirely as equity

• Entirely as a liability

• Split between liability and equity components

• Expensed immediately