Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution- NonCommercial 3.0 Unported License. How would Crocs account for the conversion of its preferred stock into common stock? Original blog posting (April 3, 2014)

Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution- NonCommercial 3.0 Unported License. Crocs announced it would be issuing $200 million of preferred stock to Blackstone group Preferred stock would be issued in first quarter 2014

Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution- NonCommercial 3.0 Unported License. The preferred stock has a conversion feature Preferred stock would be issued in first quarter 2014 In 3 years, if common stock reaches a certain target market price, it will be converted into common stock Par value per share of preferred stock is $0.001; same par value per share of common stock

Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution- NonCommercial 3.0 Unported License. Question 1 Assume that in three years, the market price for one share of Crocs common stock is $75 and this market price meets the original conversion criteria when Blackstone Group made its original investment. Also assume that one share of preferred stock converts into one share of common stock. Write the journal entry that Crocs would prepare to convert the preferred stock shares into common stock shares.

Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution- NonCommercial 3.0 Unported License. Question 2 What is the impact of this conversion of preferred stock into common stock on Crocs’ assets, liabilities, and stockholders’ equity?

Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution- NonCommercial 3.0 Unported License. Question 3 Why would preferred stock shares have been attractive to Blackstone Group when it made the initial investment in Crocs?

Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution- NonCommercial 3.0 Unported License. Question 4 Why would Blackstone Group have wanted the conversion feature on the Crocs preferred stock that it purchased?

Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution- NonCommercial 3.0 Unported License. Question Recap 1.Assume that in three years, the market price for one share of Crocs common stock is $75 and this market price meets the original conversion criteria when Blackstone Group made its original investment. Also assume that one share of preferred stock converts into one share of common stock. Write the journal entry that Crocs would prepare to convert the preferred stock shares into common stock shares. 2.What is the impact of this conversion of preferred stock into common stock on Crocs’ assets, liabilities, and stockholders’ equity? 3.Why would preferred stock shares have been attractive to Blackstone Group when it made the initial investment in Crocs? 4.Why would Blackstone Group have wanted the conversion feature on the Crocs preferred stock that it purchased?

Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution- NonCommercial 3.0 Unported License. For additional news stories to use in the accounting classroom, see the Accounting in the Headlines blog at Related video resources can be found at Questions or comments? Contact Dr. Wendy Tietz at