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Stockholders’ Equity

The Corporate Corporate Presentation and

Preferred Stock Dividend Policy
Form Capital Analysis

State Issuance of Features Financial Presentation

corporate law stock Accounting condition and Analysis
Capital stock Reacquisition for and dividend
or share of shares reporting distributions
system Stock split preferred Types of
Variety of stock dividends
Stock
ownership warrants Stock split
interests Disclosure of
restrictions

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Preferred Stock

Features often associated with preferred stock.

1. Preference as to dividends.
2. Preference as to assets in liquidation.
3. Convertible into common stock.
4. Callable at the option of the corporation.
5. Nonvoting.

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Preferred Stock

Specific Features of Preferred Stock

 Cumulative
A corporation may attach
 Participating
whatever preferences or
 Convertible restrictions, as long as it
 Callable does not violate the
corporation law.
 Redeemable

Accounting for preferred stock at issuance is similar to

that for common stock.

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Convertible Preferred Share

Convertible preferred stock is one which gives the
holder the right to exchange the holdings for other
security or the issuing corporation. The normal
conversion is from preferred to a common stock.

When preferred shares are converted, the par value

and premium of the preferred is closed to the par value
and premium, if any, of the common stock.

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Corporate Capital

Example 1: Kang Hangeul issued 10,000 convertible

preferred shares with par value of P100 at P120 per share.

Journal entry:
Cash 1,200,000
Convertible preferred share 1,000,000
Share Premium - Preferred 200,000

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Corporate Capital
Example 1-1: Subsequently the preferred shares were
converted into common stock at a ration of one preferred
for 2 common. The common stock has a par of P40.

Journal entry:
Convertible preferred share 1,000,000
Share premium -preferred 200,000
Common stock (10,000 x 2 x 40) 800,000
Share premium - common 400,000

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Corporate Capital
Example 1-2: Subsequently the preferred shares were
converted into common stock at a ration of one preferred
for 4 common. The common stock has a par of P40.

Journal entry:
Convertible preferred share 1,000,000
Share premium -preferred 200,000
Retained earnings 400,000
Common stock (10,000 x 4 x 40) 1,600,000

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Callable Preferred Share

Callable preferred share is one which can be called for
redemption at a specified price at the option of the
corporation.

When preferred shares are called in at more than original

issue price, the excess is debited to
Share premium from original issuance of preferred share
Retained earnings

When preferred shares are called in at less than original

issue price, the excess is credited to share premium on
common shares.

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Corporate Capital

Example 2: Kang Hangeul issued 10,000 callable

preferred shares with par value of P100 at P120 per share.

Journal entry:
Cash 1,200,000
Callable preferred share 1,000,000
Share Premium - preferred 200,000

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Corporate Capital
Example 2-1: Subsequently the preferred shares were
called in at P150 per share.

Journal entry:
Callable Preferred share 1,000,000
Share premium – preferred 200,000
Retained earnings 300,000
Cash 1,500,000

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Corporate Capital
Example 2-2: Subsequently the preferred shares were
called in at P90 per share.

Journal entry:
Callable Preferred share 1,000,000
Share premium – preferred 200,000
Share premium -common 300,000
Cash 900,000

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Redeemable Preferred Share

A preferred share that provides for mandatory redemption
by the issuer for a fixed or determinable price at a future
date.

A preferred share that gives the holder right to require the

issuer to redeem the instrument for a fixed or
determinable price at a future date.

Redeemable preferred shares are classified as liability and

not equity.

Dividends paid to holders are accounted for as interest

expense

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Redeemable Preferred Share

When preferred shares are redeemed in at more than
original issue price, the excess is debited to
Share premium from original issuance of preferred share
Loss on redemption

When preferred shares are called in at less than

original issue price, the excess is credited to gain on
redemption.

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Corporate Capital

Example 3: Kang Hangeul issued 10,000 redeemable

preferred shares with par value of P100 at P120 per share.

Journal entry:
Cash 1,200,000
Redeemable preferred share 1,000,000
Share Premium -preferred 200,000

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Corporate Capital
Example 3-1: Subsequently the preferred shares were
called in at P150 per share.

Journal entry:
Redeemable preferred share 1,000,000
Share premium - preferred 200,000
Loss on redemption 300,000
Cash 1,500,000

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Corporate Capital
Example 3-2: Subsequently the preferred shares were
called in at P90 per share.

Journal entry:
Redeemable preferred share 1,000,000
Share premium - preferred 200,000
Gain on redemption 300,000
Cash 900,000

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