10-67 Convertible Securities

Suppose Walla Walla Company had paid $175,000 to Freewater Company for an investment in 10,000 shares of the $5 par value preferred stock of Freewater Company. The preferred stock was later converted into 10,000 shares of Freewater Company common stock ($1 par value).

1. Using the balance sheet equation, prepare an analysis of transactions of Walla Walla Company and Freewater Company.

2. Prepare the journal entries to accompany your analysis in requirement 1.