Preferred Stock Flashcards
Types of questions:
- Determine the balance in one of the account
- Determine the value change associated with a transactions
What are the two features of preferred stock:
1) Conversion
2) Dividends
What are the features of preferred stock with conversion?
1) Callable
2) Convertible
3) Redeemable
What are the entries for called or redeemed stock?
Dividends in arrears:
Dividends or retained earnings XX
Cash (XX)
Preferred stock remove
APIC- Preferred Stock remove
Retained Earnings PLUG
Cash Price Paid
Example of Called Preferred: An issue of preferred stock at $100 par, with a preferred dividend of 7%, and 1,000 shares outstanding is called for 101. The dividend for this year has not yet been paid. All prior dividends have been paid.
Dividends 7000
Cash (7000)
Preferred Stock 100,000
Retained Earnings 1,000
Cash (101,000)
What are the entries for converted preferred?
Dividends XX
Cash (XX)
Preferred stock remove
APIC remove
RE PLUG
APIC- Common Stock (PLUG)
Common Stock Par
An issue of preferred stock at $100, with a preferred dividend of 7%, and 1,000 shares outstanding is converted into $1 par common at a rate of four shares of common per share of preferred
The preferred stock was issued for $102
Dividends 7000
Cash (7000)
Preferred Stock 100,000
APIC- Preferred 2,000
Common Stock (4,000)
APIC- Common (98,000)
Note you NEVER adjust retained earnings with a credit in this transaction because it doesn’t represent accumulated earnings. This is a transaction between owners.
What are the requirements mandatorily redeemable preferred stock? How is it recorded on the balance sheet and income statement?
Redeemable preferred stock MAY require repurchase either:
1) At a specified future date a specified price
2) At a the option of the shareholder
3) Upon occurrence of an event not within the control of the issuer.
Classified as debt! It is reported initially at fair value. Dividends are reported as INTEREST EXPENSE!
