Everwood Co.issues 10,000 shares of £10 par value convertible preference shares for £12 cash per share.Each share is convertible into 4 ordinary shares.On this date the £1 par value ordinary shares are selling for £3 per share.Approximately 2 years later, Everwood's shareholders convert their preference shares into ordinary shares.On the date of conversion the preference shares are selling for £16 and the ordinary shares are selling for £5 per share.The journal entry on the date of issuance will include which of the following?

Question

Quizplus · Accepted Answer

The journal entry at the issuance of the convertible preference shares would include a credit to Share Capital-Preference for the number of shares issued multiplied by the par value (£10). Therefore, the correct option is C, which is Credit Share Capital-Preference £100,000. No share premium is recorded at issuance because the issue price of £12 is greater than the par value of £10.