Neumann Corporation issues convertible preferred stock that is mandatorily redeemable five years from the date of issuance. During the last two years that the preferred shares are outstanding, investors may convert each one share of preferred stock to two shares of common stock. Prior to conversion or redemption, the preferred shares should be classified on the balance sheet as:

Multiple Choice

• A. debt.

• B. shareholders equity.

• C. either shareholders equity or debt.

• D. treasury stock.