Pro Com Ltd. issues 8,000, $5 cumulative preferred shares at $66 each and 15,000 common shares at $30 each at the beginning of 2015. Each preferred share is convertible into two common shares. During the years 2016 and 2017, the following transactions affected Pro Com's shareholders' equity accounts:
2016
Jan. 10 Paid $12,000 of annual dividends to preferred shareholders.
2017
Jan. 10 Paid annual dividend to preferred shareholders and a $4,000 dividend to common shareholders.
Mar. 1 The preferred shares were converted into common shares.
Instructions
(a) Journalize each of the transactions.
(b) Are there any additional reporting requirements regarding preferred share dividends in either 2016 or 2017?
(c) What factors affect preferred shareholders' decision to convert their shares into common shares?
TAKING IT FURTHER
Why might investors be willing to pay more for preferred shares that have a conversion option?