Question

In 2014, Eklund, Inc., issued for $103 per share, 70,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Eklund's $25 par value common stock at the option of the preferred stockholder. In August 2015, 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 from common stock as a result of the conversion of the preferred stock into common stock?

Select one:
A. $1,190,000
B. $910,000
C. $1,750,000
D. $1,960,000.

Answer 1

The total amount credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock is $1,750,000.

Step-by-step explanation:

To calculate the total amount credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock, we need to determine the excess of the par value of the preferred stock over the conversion value. The par value of the preferred stock is $100, and the common stock is converted at a rate of 3 shares for 1 share of preferred stock. Since 70,000 shares of preferred stock were converted, this means we have 70,000 x 3 = 210,000 shares of common stock.

The excess of the par value of the preferred stock over the conversion value is calculated by subtracting the conversion value from the par value. In this case, the conversion value is 210,000 x $25 = $5,250,000. The par value of the preferred stock is 70,000 x $100 = $7,000,000. Therefore, the excess is $7,000,000 - $5,250,000 = $1,750,000. As a result, the total amount credited to additional paid-in capital from common stock is $1,750,000.