On January 1, 2018, Bell Co. issued $10 million of 10-year convertible bonds at 105. On January 1, 2023, the bonds were converted into common stock with a market value of $11 million. Upon conversion, Bell would recognize:

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By the book value method we record the stock issued at the book value of the converted bonds. There is no gain or loss recognized. The market value method results in a gain or loss for the difference between the market value of the stock issued and the book value of the converted bonds. At the time of conversion, the common stock's $11 million exceeded the book value of the bonds ($10,500,000 - the amortized premium). Therefore, using the market value method to record the conversion results in a loss.