Redeemable Preferred Stock

B

The liquidation preference or redemption price should be used in the computation of book value per share, leverage, and capital ratios.

Redeemable preferred stock refers to a type of preferred stock that has a specific redemption feature, allowing the issuer to repurchase the stock from shareholders at a predetermined price or within a specific time period. Let's go through each answer choice to determine the correct one:

A. is reported in stockholders' equity of the balance sheet. This answer choice is incorrect. Redeemable preferred stock is classified as a liability rather than equity. It represents an obligation of the issuer to redeem the stock at a future date or upon a specified event, making it similar to a debt instrument.

B. is reported after liabilities but before the equity section of the balance sheet. This answer choice is correct. Redeemable preferred stock is typically reported after the liabilities section of the balance sheet and before the equity section. It is considered a long-term liability because the redemption typically occurs in the future.

C. must be computed at its market value on the balance sheet. This answer choice is incorrect. The value of redeemable preferred stock is typically not based on its market value. Instead, it is usually reported at its predetermined redemption price, which is specified in the terms of the stock issuance.

D. has higher priority for liquidation and dividends than preferred stock. This answer choice is incorrect. Redeemable preferred stock does not necessarily have higher priority for liquidation and dividends compared to other types of preferred stock. The priority of preferred stock is determined by the terms outlined in the stock agreement.

E. is required to be listed only as a footnote in the balance sheet. This answer choice is incorrect. Redeemable preferred stock is a significant financial instrument and is typically disclosed prominently on the face of the balance sheet rather than being listed only as a footnote.

In summary, the correct answer is B. Redeemable preferred stock is reported after liabilities but before the equity section of the balance sheet.