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Entry for Conversion of Convertible Notes

I have a client that raised $1MM in convertible notes at a $10MM cap with a 20% discount. They subsequently received their Series A investment of $10MM at a $40MM pre-money valuation at which time the convertibles converted into equity. The question is: what is the journal entry to reclass the convertibles into preferred stock on the balance sheet?

Answers

Victor Shah
Title: Account Manager
Company: FlowRocket, LLC
(Account Manager, FlowRocket, LLC) |

http://www.ey.com/publication/vwluassetsdld/financialreportingdevelopments_bb2438_debtandequity_5october2017-v2/$file/financialreportingdevelopments_bb2438_debtandequity_5october2017-v2.pdf?OpenElement

This is an article by EY on accounting of Stocks, Equity and Debts with all scenarios. This may be helpful and you can consider all other scenarios from this as well.

Let me know if this doesn't help.

Jon Placa
Title: Director of Finance and Operations
Company: NarrativeDx
LinkedIn Profile
(Director of Finance and Operations, NarrativeDx) |

Move the long-term liability (convertible note and any accrued interest) into Preferred Equity (at par value of stock, most likely $0.0001/share) and the rest into Additional Paid in Capital.

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