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. Cr. common stock $51,500.B. Cr. paid in capital in excess of par, common $1,500.C. Dr. preferred stock $51,500.D. Dr. retained earnings $1,500.

Answer 1

Answer:

The correct answer is B

Explanation:

The journal entry recorded for the conversion of the shares is as:

Common Share A/c......................................Dr $51,500

       Preferred Stock A/c...........................................Cr    $50,000

       Paid in capital in excess of par (Common)....Cr   $1,500

Being conversion of stock into common share is recorded

As the shares are converted into common stock from preferred stock, so the common stock is debited against the preferred stock which is credited. And the excess amount is credited by the account of paid in capital in excess.