When convertible preferred stock is converted into common stock:. a. cash is debited.
b. a gain or loss can be recognized.

b. a gain or loss can be recognized.

Explanation:

Convertible preferred stock is an option for shareholders with preferred shares where they have the choice of converting their preferred shares to common shares. The conversion is best done at a time when the common stock is above the conversion price. At this time, the stockholder can make a profit or gain. But if the common share is below the conversion price, the shareholder would most likely record a loss if he converts.

One disadvantage of this conversion process is that, once the preferred stock is converted to the common stock, the preferred shareholder gives up his rights as a preferred shareholder which includes no fixed dividends and higher claims on assets.

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