Preferred stock - 1

PREFERRED STOCKIssues in Consolidated

Statements Ownership implications

– No ownership of preferred stock– Ownership of preferred stock

Important dates– Acquisition of controlling interest

• Determination of appropriate “differential”

– Subsequent reporting periods Impact on consolidated income Impact on dividends received

Preferred stock - 2

OWNERSHIP CONSIDERATIONS

Preferred Stock

CommonStock

Share ofDividends

Share of Income

Share ofDividends

Share of Income

• Date of acquisition• Determination of differential (Preferred and Common)

• Annual determinations• Share of subsidiary’s dividends• Share of subsidiary’s income

Regardless of Regardless of amt. of amt. of preferred stock preferred stock owned !!!owned !!!

Preferred stock - 3

PREFERRED STOCKSpecial Features

Call or liquidation premiums

Cumulative vs. Non-Cumulative

Participating vs. Non-Participating

“These characteristics determine the share of equity allocated to the preferred stock interest”

Preferred stock - 4

INVESTMENT IN PREFERRED STOCK

Treatment of Differential Acquisition = “constructive

retirement” of preferred stock

Elimination of differential results in an adjustment of Additional contributed capital (or Retained earnings)

Preferred stock owned by outsiders = Noncontrolling interest