Most preferred stock is reported under IFRS as debt, with the dividends reported in the income statement as interest expense. Under U. S. GAAP, most preferred stock is reported as equity, with the dividends excluded from income and reported as a direct reduction to retained earnings.

Required:
1. What is the definition of a liability? What is the definition of stockholders’ equity? You may wish to refer back to Chapter 1.
2. Defend the IFRS position that preferred stock is a liability.
3. Defend the U. S. GAAP position that preferred stock is part of stockholders’ equity.
4. Based on the above, where do you recommend preferred stock be reported?