Hincapie Co., a specialty bike-accessory manufacturer, is expecting growth in sales of some products targeted to the low-price market. Hincapie is contemplating a preferred stock issue to help finance this expansion in operations. The company is leaning toward participating preferred stock because ownership will not be diluted, but the investors will get an extra dividend if the company does well. The company management wants to be certain that its reporting of this transaction is transparent to its current shareholders and asks you to research the disclosure requirements related to its capital structure.

(a)Identify the authoritative literature that addresses disclosure of information about capital structure.

(b)What information about share capital must companies disclose? Discuss how Hincapie should report the proposed preferred share issue.