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?

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 is $630,000, calculated by taking the extra amount paid ($3) over the par value for each preferred share and multiplying it by the total number of preferred shares (70,000) and then by three for the conversion ratio. However, this option is not among those provided in the question, which indicates a possible error.

Step-by-step explanation:

When all of the preferred stock was converted into common stock, 70,000 shares of preferred stock were turned into 210,000 shares of common stock (since one share of preferred stock converts into three shares of common stock). The total amount to be credited to additional paid-in capital from common stock can be calculated by looking at the excess of the consideration received over the par value of the common stock.

The par value of the common stock is $25 per share, and upon conversion, the market value of the common stock was $30 per share. Since the preferred stock was issued at $103 per share, the additional paid-in capital per share of preferred stock is $103 - $100 = $3. Therefore, the total additional paid-in capital for the conversion will be $3 multiplied by 70,000 shares, which equals $210,000.

Since each share of preferred stock is converted into three shares of common stock, we must adjust the additional paid-in capital for the total common shares issued. Thus, $210,000 multiplied by 3 gives us a total of $630,000 to be credited to additional paid-in capital from common stock. However, none of the provided options match this calculation, suggesting there may be an error in the options provided or additional information is required to accurately solve the problem.