Bach Company has issued both common and preferred stock. The preferred stock is convertible into common stock. The following information is provided for Bach Company Stockholders' equity:

Preferred stock, $14 par, 25,000 shares issued and outstanding
350,000
Additional Paid-in-Capital in Excess of Par—Preferred
100,000
Common Stock, $9 par, 125,000 shares issued and outstanding
1,125,000
Additional Paid-in-Capital in Excess of Par—Common
875,000
Retained Earnings
1,600,000

What is the necessary journal entry if 5,000 shares of preferred are converted under each independent scenario:

a. Preferred shares are convertible into common stock on a share-for-share basis.
b. Each share of convertible stock is convertible into 1.5 shares of common stock.

What will be an ideal response?

Answer:
a.
Preferred Stock—$14 par (5,000 × $14)
70,000

Addl. Paid-in-Capital in Excess of Par—Preferred
20,000

Common Stock—$9 par (5,000 shares × $9)

45,000
Add. Paid-in-Capital in Excess of Par—Common

45,000
b.
Preferred Stock—$14 par (5,000 × $14)
70,000

Addl. Paid-in-Capital in Excess of Par—Preferred
20,000

Common Stock—$9 par (5,000 shares × $9)

67,500
Add Paid-in-Capital in Excess of Par—Common

22,500