When a company's preferred shares are converted to common shares, the common share capital account is credited for the market value of the common shares, with any gain or loss flowing to contributed surplus or retained earnings.

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When preferred shares are converted into common shares, the common share capital account is credited for the par value of the common shares issued, and any excess over the par value is credited to additional paid-in capital (or contributed surplus), not to retained earnings. There is no gain or loss recognized in the income statement.

When a Company's Preferred Shares Are Converted to Common Shares