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?

Question

Quizplus · Accepted Answer

Number of shares of common stock issued on conversion = 70,000 shares of preferred stock x 3 shares per preferred share = 210,000 shares

Amount received on conversion = 70,000 shares of preferred stock x $103 per share = $7,210,000

Par value of common stock issued = 210,000 shares x $25 par value per share = $5,250,000

Total value of common stock issued = 210,000 shares x $30 market value per share = $6,300,000

Total amount credited to additional paid-in capital from common stock = Total value of common stock issued - Par value of common stock issued
= $6,300,000 - $5,250,000
= $1,050,000

However, this is only the additional paid-in capital resulting from the conversion. The company may have additional paid-in capital from common stock prior to the conversion. To get the total additional paid-in capital from common stock, this amount would need to be added to any existing balance. Therefore, the closest answer choice is D, $1,960,000.