1. Preferred stock - 1 PREFERRED STOCK Issues 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. Preferred stock - 2 OWNERSHIP CONSIDERATIONS Preferred Stock Common Stock Share of Dividends Share of Income Share of Dividends 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 stock - 3 PREFERRED STOCK Special 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. Preferred stock - 4 INVESTMENT IN PREFERRED STOCK Treatment 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