Question

If the preferred stock is convertible into 7 shares of $10 par value common stock and 4,000 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value?

Answer 1

Missing information in question:

Otis Thorpe Corporation has 10,000 shares of $100 par value, 8% preferred stock and 50,000 shares of $10 par value common stock outstanding at December 31, 2014.

The journal entry is as follows:

8% Preferred Stock A/c Dr. $400,000

To Common Stock A/c $280,000

To Paid in Capital in excess of par value $120,000

(Being 4,000 shares of Preferred stock has been converted in to Common Stock)

Workings:

Preferred Stock = 4,000 shares × $100

= $400,000

Common stock = 4,000 × 7 shares × $10

= $280,000