Capital acquisiton costs?

Sounds like an unamortizable increase in the investment account (asseet) to me.

A corporation must register with the SEC and begin filing annual (10- K) and quarterly (10-Q) reports with the SEC when it meets certain criteria. The Small Business and the SEC Q&A at

provide the answers you need. If your client is required to register with and make reports to the SEC, then it is likely time to bite the bullet and refer your client to a local CPA firm that already has SEC registered clients.

When a company makes a public offering, how do they treat the commission paid to the underwriter? Seems to me to be an analogous situation.

Generally it's a difference between a private offering and a public offering. The distinction is not completely intuitive - it's relatively difficult to qualify as a private offering, and everything else is public. And if it's public, it has to be registered with the SEC.

Stu

(snipped.....)_

I'd need to look it up, but instead of an intangible asset on the books, wouldn't it not be a decrease in capital? IOW, a debit to a separate capital account such as.... "Discount on Preferred Stock"?

What do you say, Dick?

ChEAr$, Harlan

For tax purposes, underwriting expenses are treated as an intangible and amortized over a minimum of 60 months.

For GAAP purposes, if it were Common Stock, the AICPA says it is a current expense. But since it is Preferred Stock, I agree with Harlan that it should be recorded as a contra account (Discount on Preferred Stock) and amortized over the life of the Preferred Stock.

But then I may be a CPA, but I am NOT an Accountant and almost everything I know about Taxation comes from this newsgroup.

Dick

how do you amortize over the life of preferred stock,if the preferred stock had no "termination" date? I'm no expert on preferred stock.

Gil Faver >> on the books, wouldn't it not be a decrease in capital?

Preferred Stock is a long-term Liability. While it is possible for an issuance of Preferred Stock not to have a Call Date, that would seem unlikely. If someone has a current Intermediate Accounting textbook or the FASB on Preferred Stock, they can give us the answer.

Dick

Wonder whee i went wrong. I never lernt it thataway.

In fact on all balance sheets I've EVER seen (a lot!), it's always part of Stockholders' equity.

ChEAr$, Harlan

I don't speak accountantese, but wonder if Convertible Preferred is equity, but nonconvertible preferred is a liability?

OT, but I think the wash sale instructions say Preferred Stock that is convertible to common is substantially identical to the common, but nonconvertible preferred is not?

And does cumulativity [I just made up that word; it has nothing to do with storm clouds] add to the liability?

Why is this not an ordinary business expense, deducted in the year it was paid?

I meant to do some research at office today, but no time. Sent out an email newsletter to clients and friends instead. (for a copy, email me! grin)

So for now, to my mind, Preferred stock, convertible or not, is equity.

As for the cumulative feature, any dividends supposed to be paid, but not paid due to an impairment of cash, accrue on the books as a liability, just as common dividends accrue on dividend date until paid.

ChEAr$, Harlan

p.s. and no, you did no "cloud the issue." (grin

GAAP says: Preferred stock is equity. There is one exception I am aware of. The SEC requires that all public companies remove from stockholder's equity all stock that the company is mandatorily obligated to redeem at either a specified price or readily determinable price on either a specified date or readily determinable date.

I have never personally seen this so I had to some research. It seems that public companies that have stock that falls into this category, remove the entry from stockholder equity and list it separately on a line between liabilities and equity. I have no idea what this makes it. However, when a company is obligated to repay its investors and also pays them a return on an ongoing basis for this investment, it certainly looks like a liability.

It's a cost of raising capital, not of doing business.

Seth

But after researching at the office, I'm convinced still deductible as a business expense.

Publication 535, dealing with business expenses mentions costs of issuing stock (certificates, printing, postage, etc) as not deductible, but a "sunk" cost. Paying someone to help finance the business is a bit different.

And BTW, my last Intermediate accounting text, dated 1974, by Meigs, et al, refers to Preferred Stock as equity.

ChEAr$, Harlan Lunsford, EA n LA

Because the law says it isn't. RIA has this to say on the subject:

"Unlike organizational expenditures, which are treated as creating a capital asset (see ¶ L-5201 et seq.) that can be either amortized or deducted on dissolution of a corporation (see ¶ L-5503 ), expenses of issuing stock only reduce the net amount received from the sale or exchange of the stock.

1 The rule applies whether the expense is paid in cash or in the corporation's stock. 2

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1

Barbour Coal Co v. Com., (1934, CA10) 14 AFTR 818 , 74 F2d

163 , 4 USTC ¶1367 , cert den(1935, S Ct) 295 US 731 , 79 L Ed 1680 ; Simmons Co v. Com., (1929, CA1) 7 AFTR 8783 , 33 F2d 75 , 1 USTC ¶406 , 5 USTC ¶1569 .

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2

Hollywood Baseball Assn, (1964) 42 TC 234 , acq 1964-2 CB 6, affd on other issue(1965, CA9) 16 AFTR 2d 5855 , 352 F2d 350 , 65-2 USTC ¶9718 , vacd on other issue(1966, S Ct) 17 AFTR

2d 645 , 383 US 824 , 16 L Ed 2d 291 , 66-1 USTC ¶9327 ; Steinberg, Saul, (1983) TC Memo 1983-534 , PH TCM ¶83534 , 46 CCH TCM 1238 , affdsub nom Pulte Home Corp, (1985, CA6) 56 AFTR 2d 85-5878 , 771 F2d 183 , 85-2 USTC ¶9660 . "

-- Drew Edmundson, CPA Cary, NC