Question

On 2013, Newton Inc. issued for $105 per share, 100,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Newton's $30 par value common stock at the option of the preferred stockholder. In August 2014, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What total amount should be credited to additional paid-in capital, common stock as a result of the conversion of the preferred stock into common stock?

a. $1,250,000.
b. $375,000.
c. $1,500,000.
d. $780,000.

Answer 1

option (c) $1,500,000

Step-by-step explanation:

Given:

Value per share = $105

Number of shares issued = 100,000

Par value common stock = $30

The value of the preferred stock = $105 × 100,000 shares

= $10,500,000

The par value of the common stock = $30 × 300,000

= $9,000,000

Thus,

The difference

= value of the preferred stock - par value of the common stock

= $10,500,000 - $9,000,000

= $1,500,000 represents additional paid-in capital, common stock.

Hence,

The correct answer is option (c) $1,500,000