C is corrent. When accounting for the retirement of preferred stock, preferred stock and additional paid-in capital are removed from the books based on the original issuance of the stock. Cash is credited for the cost of the shares. Any difference is debited to retained earnings or credited to paid-in capital from retirement (additional paid-in capital). In this case, the following journal entry would be made:| Preferred stock | 25,000 (500 shares × $50) | | | APIC | 7,500 ($30,000 × 25%) | | | APIC-Retirement of stock | | 10,000 (plug) | | Cash | | 22,500 |
The net effect of this journal entry on the capital accounts is a debit to preferred stock for $25,000 and a credit to APIC for $2,500.A is incorrect. When accounting for the retirement of preferred stock, preferred stock and additional paid-in capital are removed from the books based on the original issuance of the stock. Cash is credited for the cost of the shares. Any difference is debited to retained earnings or credited to paid-in capital from retirement (additional paid-in capital). In this case, the following journal entry would be made:| Preferred stock | 25,000 (500 shares × $50) | | | APIC | 7,500 ($30,000 × 25%) | | | APIC-Retirement of stock | | 10,000 (plug) | | Cash | | 22,500 |
The net effect of this journal entry on the capital accounts is a debit to preferred stock for $25,000 and a credit to APIC for $2,500.B is incorrect. When accounting for the retirement of preferred stock, preferred stock and additional paid-in capital are removed from the books based on the original issuance of the stock. Cash is credited for the cost of the shares. Any difference is debited to retained earnings or credited to paid-in capital from retirement (additional paid-in capital). In this case, the following journal entry would be made:| Preferred stock | 25,000 (500 shares × $50) | | | APIC | 7,500 ($30,000 × 25%) | | | APIC-Retirement of stock | | 10,000 (plug) | | Cash | | 22,500 |
The net effect of this journal entry on the capital accounts is a debit to preferred stock for $25,000 and a credit to APIC for $2,500.D is incorrect. When accounting for the retirement of preferred stock, preferred stock and additional paid-in capital are removed from the books based on the original issuance of the stock. Cash is credited for the cost of the shares. Any difference is debited to retained earnings or credited to paid-in capital from retirement (additional paid-in capital). In this case, the following journal entry would be made:| Preferred stock | 25,000 (500 shares × $50) | | | APIC | 7,500 ($30,000 × 25%) | | | APIC-Retirement of stock | | 10,000 (plug) | | Cash | | 22,500 |
The net effect of this journal entry on the capital accounts is a debit to preferred stock for $25,000 and a credit to APIC for $2,500. |
