Preferred Stock

Question 1

Under what condition is retained earnings debited on conversion of preferred stock to common stock?

Answer 1

Total recorded value of preferred is less than par value of common on conversion.

Question 2

What is the accounting treatment for the retirement of preferred stock?

Answer 2

1. ) All related Owner’s Equity accounts are removed;
2. ) Debit differences go to retained earnings;
3. ) Credit differences go to contributed capital.

Question 3

For what amount is Preferred Stock Additional Paid in Capital debited when called or redeemed?

Answer 3

Amount recorded from original issuance

Question 4

What is the accounting treatment for the conversion of preferred stock?

Answer 4

1. ) Preferred stock accounts are transferred to common stock accounts;
2. ) If total preferred stock value is less than common stock par value, debit retained earnings

Question 5

Is there a gain or loss when converting preferred stock ownership to common stock?

Answer 5

No