Pistons Company is a super successful producer of electronic parts. The company has 2 million 10%, cumulative preferred shares outstanding that must be redeemed by Piston for cash in 10 years. Since issuance, management has reported the stock in the balance sheet as shareholders equity. Which of the following is an accurate statement regarding the companys reporting policy?

Multiple Choice

• The policy is inappropriate because preferred stock must be reported as a liability in the balance sheet.

• The policy is inappropriate because preferred stock must be reported separately from common stock.

• This approach is inappropriate because the shares are mandatorily redeemable.

• The policy is appropriate because the shares are cumulative.