Pechstein Corporation issued 2,000 shares of $10 par value common stock upon conversion of 1,000 shares of $50 par value preferred stock. The preferred stock was originally issued at $60 per share. The common stock is trading at $26 per share at the time of conversion. Record the conversion of the preferred stock.

Preferred Stock  (1,000 shares ×$50)   $50,000

      To Paid in capital Preferred Stock {1,000 ×  ($60 - $50)} $10,000

        To Common Stock (2,000 shares × $10) $20,000

        To Paid in capital common stock  $20,000

(Being the conversion is recorded)

Explanation:

The journal entry is shown below:

Preferred Stock  (1,000 shares ×$50)   $50,000

      To Paid in capital Preferred Stock {1,000 ×  ($60 - $50)} $10,000

        To Common Stock (2,000 shares × $10) $20,000

        To Paid in capital common stock  $20,000

(Being the conversion is recorded)

For recording this we debited the preferred stock as it decreased the equity and credited the paid in capital for preferred stock, common stock, and  paid in capital for common stock as it increased the equity