Under US GAAP, If an Entity Issues 4% Preferred Stock That

question 36

Multiple Choice

Under U.S. GAAP, if an entity issues 4% preferred stock that gives shareholders the right to redeem the shares if the prevailing interest rates on 5-year certificates of deposit exceed 4%, how should this stock be accounted for on the books of the entity?

• A) Initially as equity and then reclassified as a liability when the triggering event occurs
• B) As a liability since the chances are more likely than not that the triggering event will occur
• C) As equity or a liability at the option of the entity
• D) As a permanent part of equity, to be debited as shares are redeemed

---

Definitions:

Precipitate A Crisis

To cause a sudden crisis or emergency situation through one's actions or decisions.

Follower Performance

Refers to the outcomes, behaviors, and contributions of individuals who are guided or directed by a leader within an organizational context.

Transactional Leadership

A leadership style focused on exchanges between leaders and followers, where compliance is rewarded, and noncompliance may be punished.

Leader Evaluations

The assessment of an individual's performance and qualities in a leadership role.