Question

In 2017, Eklund, Inc., issued for $103 per share, 90,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Eklund's $25 par value common stock at the option of the preferred stockholder. In August 2018, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What would the proper journal entry be as a result of the conversion of the preferred stock into common stock?

Answer 1

Answer:

The Journal entry is as follows:

Preferred stock A/c ($100 × 90,000)                  Dr. $9,000,000

Paid in capital in excess of par-preferred  A/c   Dr. $270,000

To Common stock [($25+$30)× 90,000]                                      $6,750,000

To Paid in capital in excess of par-common                                 $2,520,000

(Preferred stock converted in common stock)

Workings:

Paid in capital in excess of par-preferred = ($103 - $100) × 90,000

                                                                     = $270,000