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Chapter 16: Q3BE. (page 874)

Pechstein Corporation issued 2,000 shares of \(10 par value common stock upon conversion of 1,000 shares of \)50 par value preferred stock. The preferred stock was originally issued at \(60 per share. The common stock is trading at \)26 per share at the time of conversion. Record the conversion of the preferred stock

Short Answer

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Debit, Preferred Stock, and Paid-in Capital in Excess of Par鈥� Preferred stock with $50,000 and $10,000, respectively. Credit the Common Stock and Paid-in Capital in Excess of Par鈥擟ommon Stock with $20,000 and $40,000.

Step by step solution

01

Following are the information given

Preferred Stock $50,000 (1,000 X $50)

Paid-in Capital in Excess of Par鈥� Preferred Stock $10,000 {($60 鈥� $50) X 1,000}

Common Stock $20,000 (2,000 X $10)

Paid-in Capital in Excess of Par鈥擟ommon Stock $40,000 {($60 X 1,000) 鈥� (2,000 X $10)}

02

Journal Entry

Date

Description

DEBIT

CREDIT

Preferred Stock

$50,000

Paid-in Capital in Excess of Par鈥� Preferred Stock

$10,000

Common Stock

$20,000

Paid-in Capital in Excess of Par鈥擟ommon Stock

$40,000

Being issue of common stock against preferred stock

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Most popular questions from this chapter

EPS with Contingent Issuance Agreement) Winsor Inc. recently purchased Holiday Corp., a large midwestern home painting corporation. One of the terms of the merger was that if Holiday鈥檚 income for 2017 was \(110,000 or more, 10,000 additional shares would be issued to Holiday鈥檚 stockholders in 2018. Holiday鈥檚 income for 2016 was \)120,000.

Instructions

(a) Would the contingent shares have to be considered in Winsor鈥檚 2016 earnings per share computations?

(b) Assume the same facts, except that the 10,000 shares are contingent on Holiday鈥檚 achieving a net income of $130,000 in 2017. Would the contingent shares have to be considered in Winsor鈥檚 earnings per share computations for 2016?

What are stock rights? How does the issuing company account for them?

Kalin Corporation had 2017 net income of \(1,000,000. During 2017, Kalin paid a dividend of \)2 per share on 100,000 shares of preferred stock. During 2017, Kalin had outstanding 250,000 shares of common stock.Compute Kalin鈥檚 2017 earnings per share.

GROUPWORK (Entries for Various Dilutive Securities) The stockholders鈥� equity section of Martino Inc. at the beginning of the current year appears below.

Common stock, \(10 par value, authorized 1,000,000

shares, 300,000 shares issued and outstanding \)3,000,000

Paid-in capital in excess of par鈥攃ommon stock 600,000

Retained earnings 570,000

During the current year, the following transactions occurred.

1. The company issued to the stockholders 100,000 rights. Ten rights are needed to buy one share of stock at \(32. The rights were void after 30 days. The market price of the stock at this time was \)34 per share.

2. The company sold to the public a \(200,000, 10% bond issue at 104. The company also issued with each \)100 bond one detachable stock purchase warrant, which provided for the purchase of common stock at \(30 per share. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at \)8.

3. All but 5,000 of the rights issued in (1) were exercised in 30 days.

4. At the end of the year, 80% of the warrants in (2) had been exercised, and the remaining were outstanding and in good standing.

5. During the current year, the company granted stock options for 10,000 shares of common stock to company executives.

The company, using a fair value option-pricing model, determines that each option is worth \(10. The option price is \)30.

The options were to expire at year-end and were considered compensation for the current year.

6. All but 1,000 shares related to the stock-option plan were exercised by year-end. The expiration resulted because one of the executives failed to fulfill an obligation related to the employment contract.

Instructions

(a) Prepare general journal entries for the current year to record the transactions listed above.

(b) Prepare the stockholders鈥� equity section of the balance sheet at the end of the current year. Assume that retained earnings

at the end of the current year is $750,000.

(EPS: Simple Capital Structure) At January 1, 2017, Langley Company鈥檚 outstanding shares included the following.

280,000 shares of \(50 par value, 7% cumulative preferred stock

900,000 shares of \)1 par value common stock

Net income for 2017 was \(2,530,000. No cash dividends were declared or paid during 2017. On February 15, 2018, however, all preferred dividends in arrears were paid, together with a 5% stock dividend on common shares. There were no dividends in arrears prior to 2017.

On April 1, 2017, 450,000 shares of common stock were sold for \)10 per share, and on October 1, 2017, 110,000 shares of common stock were purchased for $20 per share and held as treasury stock.

Instructions

Compute earnings per share for 2017. Assume that financial statements for 2017 were issued in March 2018.
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