Question

In 2020, Sheffield Corp., issued for $102 per share, 97000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Sheffield's $20 par value common stock at the option of the preferred stockholder. In August 2021, 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

Answer:

Additional paid-in capital is $4,074,000.

Explanation:

In 2020, Sheffield issued $102 per share and there were 97,000 shares of convertible preferred stock.

Preferred stock = 97,000 shares × $102 = $9,894,000

Also we were told that one preferred stock can be converted to 3 common stock i.e. 3 × Preferred stock = Common stock

Therefore, Common stock = [(97000 shares × 3 shares) × $20] = $5,820,000

Additional paid-in capital = $9,894,000  - $5,820,000 = $4,074,000.