Preferred stock is
A) A type of corporate debt
B) Treated like debt for tax purpose
C) Treated like equity for both tax and accounting purposes
D) Valued based on the net worth of the issuer during the liquidation process
E) Listed in the liabilities section of a balance sheet

Question

Quizplus · Accepted Answer

Preferred stock is treated like equity for both tax and accounting purposes. It represents ownership in a company and typically pays a fixed dividend. It differs from common stock in that it often has priority in receiving dividends and in the event of liquidation, preferred shareholders have a higher claim on assets compared to common shareholders. It is not classified as debt and is not listed in the liabilities section of a balance sheet. The value of preferred stock is not based on the net worth of the issuer during the liquidation process.

Preferred Stock Is