January 7, 2014, all the preferred shareholders convert their shares to common stock.
Required:
1. Prepare the January 2, 2013, journal entry to record the issuance of the preferred stock.
2. Prepare the January 7, 2014, journal entry to record the conversion, assuming the preferred stock contract states that:
a. each share of preferred stock is convertible into 7 shares of $15 par common stock.
b. each share of preferred stock is convertible into twelve shares of $15 par common stock.
B. Highsmith Corporation issues 6,000 shares of $100 par preferred stock at a price of $117 per share. A stock warrant is attached to each share of preferred stock that enables the holder to purchase one share of $10 par common stock for $30. Immediately after issuance, the preferred stock began selling ex rights for $110 per share. The warrants (which expire in 30 days) also begin trading for $4 per warrant.