[Anonymous]

For instance if you own 100% of preferred stock and 50% of common stock would the preferred divs be treated as NI. Or would I have to use equity method since I own over 50% common stock?

[Anonymous]

Yes, ‘preferred dividends received' are income. Even if you own 50% of common stock, you will still count the preferred dividends as income.

Note: ‘preferred dividends paid' reduce income. Specifically, if you are calc'ing the EPS, you have to subtract the' preferred dividends paid' from Net Income before dividing by weighted average common shares.

[Nessie]

I think Sunni is asking about the treatment of preferred dividends for the equity method of external reporting.
Owners of preferred shared do not vote, so their percentage of ownership is irrelevant for the equity method.
The pref. div. is income, not a credit to the “investment in….” account, regardless of percentage of ownership of the preferreds.

REG Aug 20/15: 88
AUD: Feb 29/16: 80
FAR: Jun 10/16: 80
BEC?

Becker self-study, Becker Final Review & NINJA MCQS

[Excel14]

Nessie is correct. Preferred dividends are separate, and the Equity Method has no bearing on them, and they are reported as income. Common dividends reduce the investment under the Equity Method.

BEC (2/28/16) ----- 78
FAR (09/10/16)-----
AUD
REG

CIA, CGAP, CFE

[Author]

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