Question

In 2017, Coronado Industries, issued for $103 per share, 95000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Coronado's $20 par value common stock at the option of the preferred stockholder. In August 2018, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $25 per share. What total amount should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock?

Answer 1

$4,085,000

Step-by-step explanation:

Given that,

Coronado Industries, issued for $103 per share, 95000 shares of $100 par value convertible preferred stock.

1 share of preferred stock = 3 shares of common stock ($20 par value)

Additional paid in capital:

= Preferred stock - Common stock

= [95,000 shares × $103] - [(95,000 shares × 3 shares) × $20]

= $9,785,000 - (285,000 shares × $20)

= $9,785,000 - $5,700,000

= $4,085,000