When a subsidiary's preferred stock has cumulative, participating, or call features, the subsidiary's book retained earnings may require an adjusting entry in the subsidiary's general ledger to reclassify a portion of the retained earnings to the preferred stock accounts.

Question

Quizplus · Accepted Answer

The features of a subsidiary's preferred stock (cumulative, participating, or call features) do not directly affect the subsidiary's book retained earnings or necessitate an adjusting entry in the subsidiary's general ledger to reclassify retained earnings to preferred stock accounts. These features impact the distribution of dividends and terms of redemption or participation in additional earnings, but do not alter the accounting treatment of retained earnings themselves.

When a Subsidiary's Preferred Stock Has Cumulative, Participating, or Call