Question

500 shares of 6%, $100 par convertible preferred stock were issued at $103 per share. Each share is convertible into 20 shares of $5 par common stock. The journal entry to record conversion includes which of the following?

A. Cr. common stock $51,500.B. Cr. paid in capital in excess of par, common $1,500.C. Dr. preferred stock $51,500.D. Dr. retained earnings $1,500.

Answer 1

Answer:

B. Cr. paid in capital in excess of par, common $1,500

Explanation:

Paid in Capital Preferred shares = 500 shares x 100 = $50,000

Paid in Capital excessof Par Preferred shares = 500 shares x 3 = $15,000

Number of Common share to be converted = 500 preferred share x 20 share against each = 500 x 20 = 10,000 common shares

Common stock Value = 10,000 x $5 = $50,000

Paid-in-Capital Excess of Par, Common stock = $51,500 - $51,000 = $1,500