C is corrent. The solutions approach is to prepare the journal entry to reflect the conversion as illustrated below. The convertible preferred stock was originally issued for $840,000 ($105 × 8,000 shares) at a par value of $800,000 ($100 × 8,000 shares), and APIC on preferred stock of $40,000. The entry to record the conversion at the carrying value of the convertible preferred is to reverse the original entry by debiting preferred stock for $800,000 and APIC on preferred for $40,000. Since 24,000 shares of $25 par common are issued (8,000 shares × 3 = 24,000 shares), there is a credit of $600,000 to common stock. The remaining credit of $240,000 is to APIC on common.
A is incorrect. The solutions approach is to prepare the journal entry to reflect the conversion as illustrated below. The convertible preferred stock was originally issued for $840,000 ($105 × 8,000 shares) at a par value of $800,000 ($100 × 8,000 shares), and APIC on preferred stock of $40,000. The entry to record the conversion at the carrying value of the convertible preferred is to reverse the original entry by debiting preferred stock for $800,000 and APIC on preferred for $40,000. Since 24,000 shares of $25 par common are issued (8,000 shares × 3 = 24,000 shares), there is a credit of $600,000 to common stock. The remaining credit of $240,000 is to APIC on common.
A is incorrect. The solutions approach is to prepare the journal entry to reflect the conversion as illustrated below. The convertible preferred stock was originally issued for $840,000 ($105 × 8,000 shares) at a par value of $800,000 ($100 × 8,000 shares), and APIC on preferred stock of $40,000. The entry to record the conversion at the carrying value of the convertible preferred is to reverse the original entry by debiting preferred stock for $800,000 and APIC on preferred for $40,000. Since 24,000 shares of $25 par common are issued (8,000 shares × 3 = 24,000 shares), there is a credit of $600,000 to common stock. The remaining credit of $240,000 is to APIC on common.
A is incorrect. The solutions approach is to prepare the journal entry to reflect the conversion as illustrated below. The convertible preferred stock was originally issued for $840,000 ($105 × 8,000 shares) at a par value of $800,000 ($100 × 8,000 shares), and APIC on preferred stock of $40,000. The entry to record the conversion at the carrying value of the convertible preferred is to reverse the original entry by debiting preferred stock for $800,000 and APIC on preferred for $40,000. Since 24,000 shares of $25 par common are issued (8,000 shares × 3 = 24,000 shares), there is a credit of $600,000 to common stock. The remaining credit of $240,000 is to APIC on common.
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