Preferred Stock

Question 1

Does journal entry for issuance of convertible preferred shares allocate proceeds to conversion feature?

Answer 1

-No

Question 2

What is the procedure for accounting for preferred stock with warrants?

Answer 2

-Same as bonds with warrants

Question 3

What’s the accounting for calling/redeeming Preferred Stock?

Answer 3

• Remove all related OE accounts
• No gain/loss
• Dr. difference to Retained Earnings, Cr. difference to contributed capital account
• Pay off any dividends in arrears

Question 4

What’s the accounting for conversion of preferred stock?

Answer 4

• Simply transfer the accounts over

- Dr. difference to Retained Earnings, Cr. difference to APIC

Question 5

How are mandatorily redeemable financial instruments classified?

Answer 5

-As debt

Question 6

What are the major differences between IFRS and US GAAP in accounting for preferred stock?

Answer 6

-IFRS more likely to report preferred stock as debt