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) Dr. preferred stock $51,500.
b) Dr. retained earnings $1,500
c) Cr. paid in capital in excess of par, common $1,500.
d) Cr. common stock $51,500

Answer 1

Answer:

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

Explanation:

The journal entry is as follows

Preferred stock Dr $50,000    (500 shares × $100)

Paid in capital in excess of par - Preferred stock $1,500  {500 shares × ($103 - $100)}

           To Common stock $50,000     (500 shares × 20 shares × $5)

           To Paid in capital in excess of par - Common stock $1,500

(Being the conversion is recorded)