If convertible preferred shares are converted into common shares,
A) a gain on conversion must be recorded if the legal capital of the preferred shares is greater than the legal capital of the common shares.
B) a loss on conversion must be recorded if the legal capital of the preferred shares is less than the legal capital of the common shares.
C) a gain or loss on conversion is not recognized or recorded.
D) the fair value of the preferred shares on the date of conversion is credited to the Common Shares account.

Question

Quizplus · Accepted Answer

A gain or loss on conversion is not recognized or recorded because the conversion of preferred shares into common shares is considered an equity transaction, not a revenue or expense transaction.

If Convertible Preferred Shares Are Converted into Common Shares