[shawnl112]

I just want to know how do we get 375,000 for the common stock amount for this question. Thanks

During Year 1, Brad Co. Issued 5,000 shares of $100 par convertible preferred stock for $110 per share.

One share of preferred stock can be converted into 3 shares of Brad’s $25 par common stock at the option of the preferred shareholder. On December 31, Year 2 when the market value of the common stock was $40 per share, all of the preferred stock was converted. What amount should Brad credit to Common Stock and to Additional Paid-in Capital – Common stock as a result of the conversion?

Common stock Additional Paid-in capital

a. 375,000 225,000

b. 375,000 175,000

c. 500,000 50,000

d. 600,000 0

Choice “b” is correct

DR: Cash 550,000

CR: Preferred stock 500,000

CR: APIC-PS 50,000

DR: Preferred stock 500,000

DR: APIC-PS 50,000

CR: Common stock 375,000

CR: APIC-CS 175,000