If the preferred stock is convertible into 7 shares of $10 par value common stock and 4,000 shares are converted, what entry is required for

If the preferred stock is convertible into 7 shares of $10 par value common stock and 4,000 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value?

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  1. Answer:

    Missing information in question:

    Otis Thorpe Corporation has 10,000 shares of $100 par value, 8% preferred stock and 50,000 shares of $10 par value common stock outstanding at December 31, 2014.

    The journal entry is as follows:

    8% Preferred Stock A/c Dr. $400,000

                     To Common Stock A/c         $280,000

                     To Paid in Capital in excess of par value  $120,000

    (Being 4,000 shares of Preferred stock has been converted in to Common Stock)

    Workings:

    Preferred Stock = 4,000 shares × $100

                              = $400,000

    Common stock = 4,000 × 7 shares × $10

                              = $280,000

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