Question

Cross Corp. had outstanding 2,000 shares of 11% preferred stock, $50 par. On August 8, 1992, Cross redeemed and retired 25% of these shares for $22,500. On that date, Cross' additional paid-in capital from preferred stock totaled $30,000. To record this transaction, Cross should debit (credit) its capital accounts as follows:

Preferred stock Additional paid-in capital Retained earnings
A. $25,000 $7,500 ($10,000)
B. $25,000
C. ($2,500) $25,000
D. ($2,500)

Answer 1

C. ($2,500) $25,000

Step-by-step explanation:

The computation is shown below:

The Preferred stock should be debited with $25,000 and the net effect on additional paid in capital is $2,500 credit i.e. ($25,000 - $2,500)

So,

Preferred stock $25,000

And, Additional paid in capital ($2,500)

Therefore the option c is correct

And, the same is relevant