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

Preferred stock, $30 par, 25,000 shares issued and outstanding
750,000
Additional Paid-in-Capital in Excess of Par—Preferred
150,000
Common Stock, $2 par, 125,000 shares issued and outstanding
250,000
Additional Paid-in-Capital in Excess of Par—Common
3,125,000
Retained Earnings
1,600,000

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

a. Each share of convertible stock is convertible into 1.5 shares of common stock.
b. Each share of convertible stock is convertible into 4 shares of common stock.

What will be an ideal response?

Answer:
a.
Preferred Stock—$30 par (5,000 × $30)
150,000

Addl. Paid-in-Capital in Excess of Par—Preferred
30,000

Common Stock—$2 par (7,500 shares × $2)

15,000
Add. Paid-in-Capital in Excess of Par—Common

165,000
b.
Preferred Stock—$30 par (5,000 × $30)
150,000

Addl. Paid-in-Capital in Excess of Par—Preferred
30,000

Common Stock—$2 par (20,000 shares × $2)

40,000
Add. Paid-in-Capital in Excess of Par—Common

140,000