When bonds are converted to common stock
A)the market value method adds book value to stockholder's equity
B)the market value method subtracts loss from retained earnings
C)the book value method adds market value to stockholder's equity
D)the book value method subtracts loss from retained earnings

Question

Quizplus · Accepted Answer

DWhen bonds are converted to common stock using the market value method, if the market value of the stock issued is less than the book value of the bonds, the difference is recognized as a loss and subtracted from retained earnings. Similarly, under the book value method, if there's a loss due to the conversion (though this method typically focuses on the book values rather than market values), it would also be subtracted from retained earnings.

When Bonds Are Converted to Common Stock