When all of the preferred shares are purchased and formally retired by the issuing corporation for less than its original issue price, accounting for the retirement increases:
A)Contributed capital in excess of par, common stock.
B)Contributed capital from retirement of preferred shares.
C)Net income for the period.
D)Retained earnings.

Question

Quizplus · Accepted Answer

When preferred shares are purchased and retired by the issuing corporation for less than their original issue price, the difference (gain) is accounted for as an increase in "Contributed capital from retirement of preferred shares." This reflects the reduction in capital related to the preferred shares and is not treated as income or an increase in other equity accounts like common stock or retained earnings.

When All of the Preferred Shares Are Purchased and Formally