The conversion of preferred stock into common requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be:

The conversion of preferred stock into common requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be treated as a direct reduction of retained earnings.

Explanation:

When utilizing a credit, a retained earnings amount is raised and reduced with a debit. If one require the retained earnings one have reported, then must debit the income. One will normally not change the amount reported in one's retained earnings until one correct an earlier accounting mistake.

All stock and cash distributions reflect a loss of income for the company. A corporate balance sheet contains an equity portion for creditors, which records the remaining earnings for the corporation. Retained earnings will only be measured after completion of all the commitments of a corporation, including the distributions it pays out.

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