The following accounts were among those reported on Luna Corp.’s year-end balance sheet: Securities (market value $140,000) $ 80,000
The following accounts were among those reported on Luna Corp.’s year-end balance sheet: Securities (market value
$140,000)
$ 80,000
Preferred stock, $20 par value
20,000 shares issued and outstanding
400,000
Additional paid-in capital on preferred stock
30,000
Retained earnings
900,000
On January 20, Luna exchanged all of the securities for 5,000 shares of Luna’s preferred stock, which were not mandatorily redeemable. Market values at the date of the exchange were $150,000 for the securities and $30 per share for the preferred stock. The 5,000 shares were retired immediately. Which of the following journal entries should Luna record in connection with this transaction?
Debit
Credit
Preferred stock
$100,000
Additional paid-in capital
7,500
Retained earnings
42,500
Securities
$80,000
Gain
70,000
Preferred stock
100,000
Additional paid-in capital
30,000
Securities
80,000
Additional paid-in capital
50,000
Preferred stock
150,000
Securities
80,000
Additional paid-in capital
70,000
Preferred stock
150,000
Securities
80,000
Gain
70,000
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