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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
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I need help booking details of a convertible note. Funds

Customer Question

Hi. I need help booking details of a convertible note. Funds originally paid into PaidInCapital. But now theyve converted to shares. I have the interest amount and the discount price. But not exactly sure who to record in QBO.
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Customer: *how
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Submitted: 9 months ago.
Category: Tax
Expert:  Stephen G. replied 9 months ago.

Are you talking about the issuing entity?

You are going to have to make a journal entry.

Can you give me the details of the transaction?

Customer: replied 9 months ago.
for the company that issued shares. During a financing round notes were issued for a set amount and those funds were put into Paid-In-Capital. Now the notes have been converted to shares. For each transaction, I have been given the following details:
Principal Amount Cap Discount Interest Accrued Interest Total Discount Price Cap Price Series Seed Shares
I figured I would need to do a journal entry, but wasn't entirely sure beyond that ....
Expert:  Stephen G. replied 9 months ago.

Plug in some numbers; your titles have run together.

Basically, if there's been no payment of interest to the note holders, you're just going to reclass everything to Capital Stock & paid in capital....... The split is arbitrary unless there's a par to the stock; if so, use that for the stock & the rest goes to paid in capital.

I don't know why it was put in paid in capital in the first place if they were actually convertible notes.

Were they paying interest to the "bond" holders?

Customer: replied 9 months ago.
They are actually convertible notes. No interest was paid to note holders. Maybe they should not have been put into Paid In Capital.Example: Discount 75% 25k Principal. Interest=$3956.16 Total 28956.16 Discount Price .51923 Shares Issued 55767.
Currently the 25k is in PAID IN CAPITAL. What do I debit from PIC and credit to Common Shares?
Expert:  Stephen G. replied 9 months ago.

You need to determine is the Capital Stock has a par or stated value.

If so, that's what you record the stock at and leave the rest in Paid in Capital

If no par or stated value, you can either put everything into the Capital Stock account,

or split it based upon some arbitrary amount like 10 cents or 1 cent a share; it has no affect on anything if it's no par.

Personally, in this situation, I'd put everything you have in Paid-In-Capital into the Capital Stock account.

What was in the stock account previously?

Was there anything in Paid in Capital other than the Convertible Note which didn't belong in there in the first place?

Or did they never record any outstanding Capital Stock?

Expert:  Stephen G. replied 9 months ago.

Just checking in. I see that you have been able to review my latest comments.

Do you have any additional follow-up questions?

If not, please remember to rate my response as that is the only way we receive credit for our work.

Thanks very much,

Steve G.

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