Exercise #1:

Merliss Company (a specialty boat-accessory manufacturer) is expecting growth in sales of certain low price products. Merliss is thinking about a preferred stock issue to help finance this expansion. The company is leaning toward issuing participating preferred stock so as not to dilute ownership. Investors will get an extra dividend if the company does well. Merliss wants to be sure that all reporting for this transaction is proper and transparent. The company asks you to research disclosure requirements related to its capital structure.

A. Identify the authoritative literature that addresses disclosure of information about

capital structure.

B. Find definitions for the following:

1. Securities.

2. Participation Rights

3. Preferred Stock

C. What information about securities must companies disclose? Discuss how Merliss should report the proposed preferred stock issue.