Merliss Company(a specialty boat-accessory manufacturer) is expecting growth in
ID: 2485332 • Letter: M
Question
Merliss Company(a specialty boat-accessory manufacturer) is expecting growth in sales of certain low price products. Merliss is thinking about a preferred stock issue to help finance this expansion. The company is leaning toward issuing participating preferred stock so as not to dilute ownership. Investors will get an extra dividend if the company does well. Merliss wants to be sure that all reporting for this transaction is proper and transparent. The company asks you to research disclosure requirements related to its capital structure. 1) Identify the authoritative literature that addresses disclosure of informatiom about capital structure. 2) What information about securities must companies disclose? Discuss how Merliss should report the proposed preferred stock issu.
Explanation / Answer
Ans 1) It is FAS (Financial Accounting Standard) # 129, wherein it requires the company to provide the disclosure of information about capital structure. This statement applied to all entities.
Ans 2) It should disclose the EPS, various rights and privileges of various securuities which are outstanding currently.Dividend should be disclosed, participation rights should be disclosed,liquidation preferences should be disclosed.Call prices and dates are to be disclosed,unusual voting rights and important terms of contracts to issue additional shares must also be disclosed.
Ans 3)disclosure should be made in the equity section of the financial statements in aggregate in short or in paranthesis (). It should not be disclosed as notes or as per share basis.