Asked by Trinhh Ph??ngg on May 03, 2024
Verified
When a publicly traded company issues both common stock and preferred stock,the SEC requires that
A) preferred and common stock be combined in the equity section.
B) preferred and common stock be clearly differentiated on the balance sheet.
C) all preferred stock be shown as a liability.
D) mandatorily redeemable preferred stock be shown as a liability.
SEC Requires
Mandatory rules and requirements established by the Securities and Exchange Commission that publicly traded companies must follow to protect investors and ensure the integrity of the securities markets.
Common Stock
Common stock represents units of ownership interest or equity in a corporation, where holders usually have voting rights to elect the board of directors.
Preferred Stock
A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, often paying fixed dividends.
- Determine the categorization and documentation necessities for compulsorily redeemable preferred shares.
Verified Answer
TT
Thalia ThonyMay 08, 2024
Final Answer :
B
Explanation :
The SEC requires that preferred and common stock be clearly differentiated on the balance sheet when a publicly traded company issues both types of stock. This can be done by presenting them separately in the equity section or by disclosing them in the notes to the financial statements. However, they cannot be combined together as one line item. This is because preferred and common stock have different characteristics, such as priority in dividends and voting rights, and investors need to be able to distinguish between them to make informed decisions.
Learning Objectives
- Determine the categorization and documentation necessities for compulsorily redeemable preferred shares.