C is corrent. Under the book value method of accounting for bond conversions, no gain or loss is ever recognized on conversion. The bonds are simply removed from the books at their book value and the stock is recorded at the book value of the bonds. Under the market value method, the stock is recorded at its market value on the date of conversion and the bonds are removed at book value. Any difference between these amounts is the gain or loss recognized upon conversion.
A is incorrect. Under the book value method of accounting for bond conversions, no gain or loss is ever recognized on conversion. The bonds are simply removed from the books at their book value and the stock is recorded at the book value of the bonds. Under the market value method, the stock is recorded at its market value on the date of conversion and the bonds are removed at book value. Any difference between these amounts is the gain or loss recognized upon conversion.
A is incorrect. Under the book value method of accounting for bond conversions, no gain or loss is ever recognized on conversion. The bonds are simply removed from the books at their book value and the stock is recorded at the book value of the bonds. Under the market value method, the stock is recorded at its market value on the date of conversion and the bonds are removed at book value. Any difference between these amounts is the gain or loss recognized upon conversion.
D is incorrect. Under the book value method of accounting for bond conversions, no gain or loss is ever recognized on conversion. The bonds are simply removed from the books at their book value and the stock is recorded at the book value of the bonds. Under the market value method, the stock is recorded at its market value on the date of conversion and the bonds are removed at book value. Any difference between these amounts is the gain or loss recognized upon conversion.
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