To expand their marketing, Terry needed to raise more capital. Thus, on June 30th year 3, Terry issued 10,000 shares of 5% $100 par noncumulative nonparticipating preferred stock for $125 per share. Of these 10,000 shares, Terry included a conversion feature in 2,000 of these shares. This conversion feature allows the investor to convert 1 share of preferred stock into 6 shares of common stock at will.

Share Repurchase

Later in year 3, on November 15 when a market change significantly dropped stock prices, Terry’s Board voted to repurchase 8,000 shares of common stock. The stock price on the day of the purchase was $8.00/share. Terry company prefers to use the Treasury stock method.

Preferred Dividends

At December 31st , year 3 Terry declared and paid a preferred dividend of $2.50 per share. As of December 31st , year 3 no preferred shareholders had converted their stock into common stock. Note that earlier in year 3, on March 31st, Terry had declared and paid $200,000 in dividends to common shareholders. This dividend to common shareholders was correctly reported and is already reflected in the preliminary financial statements.