Question

Contrast common stock, preferred stock, and bonds payable. What are the similarities? What are the differences?

Are bonds and mandatorily redeemable stock reported any different in the financial statement? Why?

Answer 1

Common stock: highest risk form of investing in a company because in the event of liquidation, these shareholders get paid out last - if there’s anything left. Correspondingly, common stock typically provides the highest return compared to other types of investment into a company. Common stock may pay a dividend and give the shareholder voting rights.

Preferred Stock: this form of equity investment is similar to common stock except that preferred stock holders get paid their dividend before common stock holders get theirs. Typically preferred stock holders don’t get voting rights.

Bonds: Its a debt instrument: If a company wishes to borrow money from investors, it issues corporate bonds with a fixed amount of interest for a fixed period. Investors that buy corporate bonds get the fixed interest the bond pays, they are paid out before stock holders in the event of liquidation and the bond may be secured against specific corporate assets. Corporate bonds issued with less than one year term to maturity are called commercial paper.

there are various types of similarities such as all the common stock preferred stock and bonds payable at two minutes and helps in the financing for the company. It gives benefits for the tax expense.

Mandatorily redeemable shares are shares of stock owned by an individual or entity, which are required to be reclaimed by the issuer for cash or another such property at a stated time or following a specific event whereas the bonds are debt security, under which the issuer owes the holders a debt and (depending on the terms of the bond) is obliged to pay them interest (the coupon) or to repay the principal at a later date, termed the maturity date.