Intermediate Accounting

posted by .

During 2009 Bradley Corporation issued for $110 per share, 5,000 share of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Bradley’s $25 par value common stock at the option of the preferred stockholder. On December 31, 2010, all of the preferred stock was converted into common stock. The market value of the common stock at the conversion date was $40 per share. What amount should be credited to the common stock account on December 31, 2010?
a. $375,000
b. $500,000
c. $550,000
d. $600,000

  • Intermediate Accounting -

    This answer is correct. All 5,000 shares of the convertible preferred stock were converted to common stock at the rate of 3 to 1 (making 15,000 common shares issued). The common stock account is credited for the par value of these shares: 15,000 × $25 or $375,000. Although not necessary, the journal entry to record the conversion can be prepared

    Preferred stock 500,000 (5,000 × $100)
    Paid-in capital—PS 50,000
    (5,000 × $10)
    Common stock 375,000 (15,000 × $25)
    Paid-in capital—CS 175,000 (plug)
    The $40 market value of the common stock is ignored. Gains (losses) are not recognized on the conversion of preferred stock. The book value method is used and the paid-in capital, common stock account is credited for the amount necessary to balance the entry.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. accounting

    Jones Company is authorized to issue 20,000 shares of no-par, $5 stated-value common stock and 5,000 shares of 9%, 100 par preferred stock. It enters into the following transaction: 1. Accepts a subscription contract to 7,000 shares …
  2. Intermediate Accounting

    Information relating to the capital structure of Parke Corporation is as follows: ` December 31 2008 2009 Outstanding shares of: Common stock 90,000 90,000 Preferred stock, convertible into 30,000 shares of common 30,000 30,000 10% …
  3. accounting

    Pearson began 20XX with 30,000 $1 common shares issued and outstanding. Paid in capital in excess of par was $25,000 and retained earnings were $75,000. Net income for 20XXwas $22,000. Requirements: Review Pearson's transactions for …
  4. accounting

    Finishing Touches has two classes of stock authorized: 8%, $10 par preferred and $1 par value common. The following transactions affect stockholders' equity during 2010, its first year of operations: January 2 Issue 100,000 shares …
  5. financial accounting

    (5) Chapter 13 Problem The Torre Company has the following balances in stockholders equity on December 31st. Common Stock - $5.00 par, 60,000 issued $300,000 Additional paid in capital - common 600,000 Preferred stock - $100 par, 5,000 …
  6. ACC291

    The following stockholders' equity accounts arranged alphabetically are in the ledger of McGrath Corporation at December 31, 2011. Common Stock ($10 stated value) $1,500,000 Paid-in Capital from Treasury Stock 6,000 Paid-in Capital …
  7. acc/291

    The following stockholders’ equity accounts arranged alphabetically are in the ledger of McGrath Corporation at December 31, 2011. Common Stock ($10 stated value) $1,500,000 Paid-in Capital from Treasury Stock 6,000 Paid-in Capital …
  8. accounts

    A prospective investor has hired you to develop a worksheet that will compute the book value per share on each class of stock of various companies. Your worksheet should include a Data Section. One of the companies the investor is …
  9. Accounting/Finance

    Temte Corporation is authorized to issue 1,000,000 shares of no-par common stock and 250,000 shares of 6 percent, $25 par value, cumulative preferred stock. These events affected stockholders’ equity during the first year of operations: …
  10. Acounting

    How can I make journal entry for a corporation called H who is authorized to issue 100000 shares of $ 20 par common stock & 5000 shares of $ 100 par, 8 preferred stock. The following transactions affecting shareholders equity were …

More Similar Questions