An unsettled question in accounting for stock is this: Should preferred stock be recognized as a liability, or should it be considered equity? Under International Financial Reporting Standards, preferred stock (preference shares) often is reported as debt with the dividends reported in the income statement as interest expense. Under U.S. GAAP, that is the case only for mandatorily redeemable preferred stock.

Two opposing viewpoints are:

View 1: Preferred stock should be considered equity. View 2: Preferred stock should be reported as a liability.

In considering this question, focus on conceptual issues regarding the practicable and theoretically appropriate treatment, unconstrained by GAAP.

Required:

1. Which view do you favor? Develop a list of arguments in support of your view.