Final answer:
In the conversion of Host Enterprises' preferred stock to common stock, the preferred stock account is debited, and the common stock account is credited, with an additional credit to the paid-in capital account for the premium on the original issue of preferred stock.
Step-by-step explanation:
When Host Enterprises issued 1,000 shares of common stock with a par value of $2 each upon conversion of 1,000 shares of preferred stock (par value $1) that was originally issued for a $200 premium, the journal entry to record the transaction would involve several accounts.
The conversion would typically result in debiting the preferred stock account and crediting the common stock account. However, because the preferred stock was issued for a $200 premium, this additional amount would be credited to the additional paid-in capital or premium on preferred stock account. It's important to note that if the conversion terms stipulate a different treatment of the premium, those terms would dictate the appropriate accounting entry.
The entry would likely be as follows:
- Debit Preferred Stock $1,000 (1,000 shares × $1 par value)
- Debit Paid-in Capital in Excess of Par—Preferred Stock $200
- Credit Common Stock $2,000 (1,000 shares × $2 par value)
This entry assumes that the conversion is done at par value and that there is no additional cash or other consideration paid or received in the transaction.