The Bockster Company issues $20 million of preferred shares on January 1, Year 1, at par value. The preferred shares have a 5 percent fixed annual cash dividend.
Part A. The preferred shareholders have the option to redeem the preferred shares for cash equal to par value any time after January 1, Year 2.
Required:
Discuss how Bockster should account for these redeemable preferred shares.
Part B. The preferred shareholders do not have the option to redeem the preferred shares, but instead have the option to convert the preferred shares into a fixed number of shares of common stock any time after January 1, Year 2.
Required:
Discuss how Bockster should account for these convertible preferred shares.