Hincapie, Inc. & Preferred Stock Issue Research Paper

Dear Hincapie Company,

We welcome your request for seeking advice over disclosure requirements over change in the capital structure of the company on the issue of preferred stock, which your company is contemplating to assist the planned expansion. This response focus on the disclosure requirements as laid by FASB and also some related definitions on the issue of preferred stock.
Since this financial transaction is new to the company, it is equally important to understand few related terms relating to issue. Security is a negotiable financial instrument with a financial value embedded with it. Participation Rights are the contractual rights with which investors or the shareholders participate in the profits and even losses of the company of the issuing company, and Preferred Stock is the type of security that have preferential rights over the common shareholders of the company in terms of dividend payments and liquidation payments.
After conducting a thorough research in the accounting literature, I have found that on the issue of preferred stock, Hincapie Company must make disclosure about the changes to capital structure to the shareholders as any such issue will affect the stockholder’s existing position. (FASB 505-10-20)
In addition, on the issue of preferred stock, you must make separate disclosure about participation rights of the preference stock holders within the summary of the financial statements. (FASB 505-10-50-3) Disclosure should also be made relating to liquidity preference of the preference stock, however any such disclosure should neither be made in the notes to the financial statements nor on per-share basis.(FASB 505-10-50-4) Moreover, the company should disclose the following within its financial statements
‘’The aggregate or per-share amounts at which preferred stock may be called or is subject to redemption through sinking-fund operations or otherwise’’

‘’The aggregate and per-share amounts of arrearages in cumulative preferred dividends.’’

I hope that the above information regarding the required disclosures on the issue of preferred stock will be helpful to you. I would be happy to assist the company during the time of issue of the stock and also beyond it, and will ensure that each stipulated disclosure requirement related to the preferred stock is met. If you have any questions, please don’t hesitate to let me know.
Thanks

References:

Financial Accounting Standard Board, FASB Codifications, 25th February, 2015.