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Home / Questions / The following accounts were among those reported on Luna Corp.’s balance sheet at December 31 2005

The following accounts were among those reported on Luna Corp.’s balance sheet at December 31 2005

The following accounts were among those reported on Luna Corp.’s balance sheet at December 31, 2005:

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Available-for-sale 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, 2006, Luna exchanged all of the available-for-sale securities for 5,000 shares of Luna’s preferred stock. Market values at the date of the exchange were $150,000 for the available-for-sale securities and $30 per share for the preferred stock. The 5,000 shares of preferred stock were retired immediately after the exchange. Which of the following journal entries should Luna record in connection with this transaction?

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Debit

Credit

a.

Preferred stock

100,000

 

 

Additional paid-in capital on preferred stock

7,500

 

 

Retained earnings

42,500

 

 

 

Available-for-sale securities

 

80,000

 

 

Gain on exchange of securities

 

70,000

b.

Preferred stock

100,000

 

 

Additional paid-in capital on preferred stock

30,000

 

 

 

Available-for-sale securities

 

80,000

 

 

Additional paid-in capital from retirement of preferred stock

 

50,000

c.

Preferred stock

150,000

 

 

Available-for-sale securities

 

80,000

 

Additional paid-in capital on preferred stock

 

70,000

d.

Preferred stock

150,000

 

 

Available-for-sale securities

 

80,000

 

Gain on exchange of securities

 

70,000

Aug 13 2020 View more View Less

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