Question

This is intermediate accounting question about Stockholder's Equity (chp15)

On January 1, 2015, Kelsey issued 600,000 of its $10 par value, 6% preferred stock for $20 per share. Kelsey incurred and paid stock issuance costs of $150,000. Each share of Kelsey’s preferred stock can be converted into 3 shares of Kelsey’s $1 par value common stock. On August 15, 2015, when 1 share of Kelsey’s common stock was trading for $10 per share, 300,000 shares of the preferred stock were converted into common stock. On December 31, 2015, when 1 share of Kelsey’s preferred stock was trading for $12 per share, Kelsey declared the annual preferred stock dividend. Prepare the entries Kelsey should make on:

• January 1, 2015.
• August 15, 2015.
• December 31, 2015.

Answer 1

Solution:

Date	Particulars	Debit($)	Credit($)	Calculations
Jan 01, 2015	Cash A/c Dr	$11,850,000		(600,000*20) - 150,000
	To preferred stock A/c		$6,000,000	(600,000*10)
	To Additional paid in capital in excess of par preferred A/c		$5,850,000
Aug 15, 2015	Preferred stock A/c Dr	$3,000,000		(300,000*10)
	Additional paid in capital in excess of par preferred A/c Dr	$1,950,000		(5,850,000/3)
	To common stock A/c		$600,000
	To Additional paid in capital in excess of par common A/c		$4,350,000
Dec 31, 2015	Preferred dividend A/c Dr	$180,000		(300,000*6%)
	To Payable dividend A/c		$180,000