Recall from Chapter 13 that Hincapie Co. (a specialty bike 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 towards 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 wants you to research the disclosure of information about shareholders' equity.

Instructions,

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

b)Find the definition of the following:

1)Securities

2)Participation rights

3)Preferred stock

c)What information about securities must companies disclose? Discuss how Hincapie should report the proposed preferred stock issue.