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Preferred stock belongs in a dated, class-level equity analysis. Preferred stock has stated priorities or other special terms. Build a term sheet for dividends, participation, conversion, redemption, settlement, and liquidation before recording or presenting it. Its title alone does not establish permanent-equity classification.
Apply it
A 6 percent, $100-par cumulative preferred share carries a $6 annual dividend preference. If 20,000 shares are outstanding, one year's preference is $120,000, subject to the instrument's complete terms.
Review preferred stock against common stock. Reconcile preferred stock to participating preferred stock, the dated preferred stock evidence, and its final presentation.
The preferred stock record ties common stock to its source date, measured amount, and participating preferred stock effect.
Keep the boundary clear
This article explains class rights used in the equity and EPS workpapers. Classification under liability, temporary-equity, derivative, or other guidance requires a separate analysis.
Authority
Read ASC 505-10-50-3 for rights and privileges of outstanding securities.
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Apply this concept
- Explain and apply preferred stock within a reconciled class-level equity workpaper using supplied authoritative facts.
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- Equity — Understand
To apply this concept: Required. This prior idea supplies the quantities or classification needed for the current analysis.
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- Income available to common shareholders — Apply
Required level here: apply. Required. This earlier step supplies an input required by the EPS workpaper.
- Participating preferred stock — Apply
Required level here: apply. Required. This prior idea supplies the quantities or classification needed for the current analysis.
- Preferred dividend arrearage — Apply
Required level here: apply. Required. This prior idea supplies the quantities or classification needed for the current analysis.