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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Preferred stock that may be retired by the corporation at its option is known as:

  1. a. convertible
  2. b. redeemable
  3. c. cumulative
  4. d. callable

To determine

Identify the suitable term for the statement “Preferred stock that may be retired by the corporation at its options is known as”.

Explanation

Preferred stock: The stock that provides a fixed amount of return (dividend) to its stockholder before paying dividends to common stockholders is referred as preferred stock.

A preferred stock may be cumulative and non-cumulative. A cumulative preferred stock implies that a preferred stockholder is entitled to receive dividends for the current year plus any unpaid dividends of the previous years, before the dividends paid to the common stockholders.

    a) Convertible: This feature allows preferred shareholder to exchange preferred shares for common shares at predetermined conversion ratio.

    b) Redeemable: Under this feature, shares can be redeemed or returned to the corporation either at the option of the shareholder or the corporation...

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