Pro Com Ltd. issues 8,000, $5 cumulative preferred shares (convertible into two common shares apiece) at $66, and 15,000 common shares (at $30 each) at the beginning of 2012. During the years 2013 and 2014, the following transactions affected Pro Com's shareholders' equity accounts:
2013 Jan. 10 Paid $12,000 of annual dividends to preferred shareholders.
2014 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 2013 or 2014?
(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?