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

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Definitions:

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Consumer Dissatisfaction

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