Question

Neumann Corporation issues convertible preferred stock that is mandatorily redeemable five years from the date of issuance. During the last two years that the preferred shares are outstanding, investors may convert each one share of preferred stock to two shares of common stock. Prior to conversion or redemption, the preferred shares should be classified on the balance sheet as:

Answer 1

Answer:

Equity

Explanation:

The preferred shares should be classified on the balance sheet as equity. Equity is the residue after Liabilities are deducted from the Assets. They also represents owners investments in the company.