How would exercise of the conversion option,that was part of the initial compound instrument,be recorded?
A)Common stock is recorded at an amount equal to the fair value of the options at date of conversion.
B)Common stock is recorded at an amount equal to the price determined by the Black-Sholes model.
C)Common stock is recorded at an amount equal to the market price of the shares on conversion date.
D)Common stock is recorded at an amount equal to the cash received plus the contributed surplus initially recorded.

Question

Quizplus · Accepted Answer

When a conversion option that was part of an initial compound instrument is exercised, the accounting treatment involves recording the common stock at an amount equal to the cash received (if any) plus the contributed surplus (or additional paid-in capital) that was initially recorded in relation to the convertible feature of the instrument. This approach ensures that the equity section of the balance sheet reflects the total value contributed by the shareholders through the conversion process.

How Would Exercise of the Conversion Option,that Was Part of the Initial