PREFERRED STOCK Issues in Consolidated Statements

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

2. OWNERSHIP CONSIDERATIONS Preferred Stock Common Stock Share of Dividends Share of Dividends Share of Income 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 amt. of preferred stock owned !!!

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”

4. INVESTMENT IN PREFERRED STOCKTreatment 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