Answer:
bonds payable 400,000 debit
premium on BP 6,200 debit
preferred stock 40,000 credit
additional paid-in PS 366,200 credit
Explanation:
We will convert the bonds into shares based on their curent value this will make create an aditional paid-in preferred stock if higher or decrease retained earnings if lower:
$400,000 bonds + $6,200 premium = $406,200 book value
$400,000 / $1,000 each = 400 x 20 shares each = 800 preferred shares x 50 dollar each = $40,000
The differenct will be adidtional paid.in capital
