Preferred stock can have features that resemble both liabilities and stockholders' equity. For example, it typically pays a fixed dividend like a liability, but it also represents ownership in the company like stockholders' equity. Therefore, it is often classified as a hybrid security. It is recorded in the equity section of the balance sheet, but separately from common stock.

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Preferred Stock

Question 68

Multiple Choice

Preferred stock:

A) Is always recorded as a liability.
B) Is always recorded as part of stockholders' equity.
C) Can have features of both liabilities and stockholders' equity.
D) Is not included in either liabilities or stockholders' equity.

Correct Answer: