Sses of stock are two general classes of stock

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sses of Stock are two general classes of stock: preferred and cornmon. The difference between the two in the legal rights conferred upon each class. erred Stock erred stock generally has preference, or priority, with respect to cornmon stock. Two usual ferences are: LO 1 Describe and analyze accounting for contributed capital, including stock sales and repurchases, and equity-based compensation.
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8-5 Module 8 I Equity Recognition and Owner Financing 1. Dividend preference Preferred shareholders recei ve dividends on their shares before comm shareholders do.If dividends are not paid in a given year, those dividends are normally forgone However, some preferred stock contracts include a cumulative provision stipulating that an:' forgone dividends (dividends in arrears) must first be paid to preferred shareholders, togetb with the current year's dividends, before any dividends are paid to common shareholders. 2. Liquidation preference If a company fails, its assets are sold (liquidated) and the proceeds <:c paid to the creditors and shareholders, in that order. Shareholders, therefore, have a greater ofloss than creditors. Among shareholders, the preferred shareholders receive payment in before common shareholders. This liquidation preference makes preferred shares less risky common shares. Any liquidation payment to preferred shares is normally at par value, altho ~ sometimes the liquidation is specified in excess of par; called a liquidating value. To illustrate the typical provisions contained in preferred stock agreements, consider the folIo - ing stockholders' equity and related footnote disclosure from Fortune Brands, Inc. (2010 10- 2009 December 31 (in millions, except per share amounts) 2010 Fortune Brands stockholders' equity $2.67 convertible preferred stock . Common stock, par value $3.125 per share, 234.9 shares issued . Paid-in capital . Accumulated other comprehensive loss . Retained earnings . Treasurystock, at cost . Total Fortune Brands stockholders' equity . Noncontrolling interests . Total equity . $ 4.9 734.0 820.2 (172.0) 7,499.3 (3,215.3) 5,671.1 16.9 $5,688.0 $ 5.2 734.0 755.6 (211.8) 7,135.4 (3,326.0) 5,092.4 13.3 $5,105.7 $2.67 Convertible Preferred Stock-Redeemable at Company's Option We have 60 million authorized shares of Preferred stock. There were 160,729 and 171,138 shares of the $2.67 Convert- ible Preferred stock issued and outstanding at December 31, 2010 and 2009, respectively ... The holders of $2.67 Convertible Preferred stock are entitled to cumulative dividends, three-tenths of a vote per share together with holders of common stock (in certain events, to the exclusion of the common shares), preference in liquidation over holders of common stock of $30.50 per share plus accrued dividends and to convert each share of Convertible Preferred stock into 6.601 shares of common stock ... Holders converted 10,409 and 7,366 shares of Preferred stock into common stock during 2010 and 2009, respectively. The Company may redeem the Convertible Preferred stock at a price of $30.50 per share, plus accrued dividends. The Company paid cash dividends of $2.67 per share of Preferred stock in the aggregate amount of $0.4 million in the year ended December 31, 2010 and $0.5 million in each of the years ended December
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