Assume that the preferred are convertible into common at a

Assume that the preferred are convertible into common at a rate of eight common shares for each share of preferred. If 1,000 shares of the preferred are converted into common on April 1, 2020, prepare the entry and describe how this affects the equity section of the balance sheet (immediately after the conversion).

                                         Walking Bear Resources Inc.
                                  Equity Section of the Balance Sheet
 
                                             March 31, 2020
Contributed capital:
Preferred shares, $17 cumulative, 2,500 shares authorized,
issued, and outstanding ........................................................... $ 600,000
Common shares, unlimited shares authorized,
40,000 shares issued and outstanding ...................................... 960,000
Total contributed capital ........................................................ $1,560,000
Retained earnings ........................................................................ 462,000
Total equity .............................................................................. $2,022,000


Analysis Component: If you are a common shareholder in this company, and the company plans to pay total cash dividends of $720,000, does it make any difference to you whether the conversion takes place before the dividend declaration? Why?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...

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