Detailed Answer
(c) Information about all investing and financing activities
of an enterprise during a period that affect recognized assets
and liabilities but that do not affect cash receipts or cash payments
in the period should be reported in a supplemental schedule
to the financial statements. This schedule includes all noncash
investing and financing activities for the period. The
conversion of long-term debt into common stock does not have
any effect on cash flow, and it also results in a reduction of liabilities
and an increase in stockholders’ equity. Therefore, the conversion
of long-term debt into common stock should be reported
as a noncash financing activity in the supplemental schedule.
Mandatorily redeemable preferred stock should be classified as a
liability. On the date the preferred stock is redeemable, it is considered
liability. Therefore, when the preferred stock is converted
into common stock, the conversion should be reported as
a noncash financing activity in the supplemental schedule.
