Under USGAAP,if an Entity Issues 4% Preferred Stock That Gives Shareholders

question 21

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

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Definitions:

Private Ownership

The possession of property by individuals or legal entities other than the government.

Clearly Defined

Specifically and unambiguously articulated or delineated.

Private Owner

An individual or entity that legally possesses property or a business and has exclusive rights over its use and distribution.

Economic Significance

The measure of the impact that an event, policy, or market trend has on economic factors such as growth, employment, inflation, and investment.