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Sheffield 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 $65 per share. The common stock is trading at $26 per share at the time of conversion.
a. Record the conversion of the preferred stock.

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letmeanswer

Conversion of preferred stocks:

The conversion of the preferred stock is as follows,

Debit== Preferred Stock

[tex]\rightarrow(1,000\times\$50) = 50,000[/tex]

Debit== Paid-in Capital in Excess of Par - Preferred Stock

[tex]\rightarrow(\$65 - \$50)\times1,000=15,000[/tex]

Cr. Common Stock

[tex]\rightarrow(2,000\times \$10) = 20,000[/tex]

Cr. Paid-in Capital in Excess of Par—Common Stock

[tex]\rightarrow(\$65\times1,000) - (2,000\times\$10) = 45,000[/tex]

Note: Before issuing any convertible preferred stock, company fixes the conversion ratio.

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