Pro Com Ltd. issued 8,000, $5 cumulative preferred shares at $66 each and 15,000 common shares at $30 each at the beginning of 2022. Each preferred share is convertible into two common shares. The appropriate preferred share dividend was declared and paid in 2022. During the years 2023 and 2024, the following transactions affected Pro Com’s shareholders’ equity accounts: 

2023 

Jan. 10 Declared and paid $12,000 of annual dividends to preferred shareholders. 

2024

Jan. 10 Declared and paid annual dividend to preferred shareholders and a $4,000 dividend to common shareholders. 

Mar. 1 The preferred shares were converted into common shares.

Instructions 

a. Journalize each of the 2023 and 2024 transactions. 

b. Are there any additional reporting requirements regarding preferred share dividends in either 2023 or 2024? 

c. What factors affect the preferred shareholders’ decision to convert their shares into common shares? 

Why might investors be willing to pay more for preferred shares that have a conversion option?