Expert: Arthur Naman - 8/18/2011

Question
How should an LLC's preferred units buy-back discount be accounted for?
The company I work for is repurchasing back some of their preferred units. They are most likely going to use debt for the repurchase. The units are being bought back at a discount. Want to know how this discount gets recorded for accounting purposes. Will it be on the Balance Sheet or flow through the P&L or something entirely different? Any resources for research would also be greatly appreciated.

Answer
The P&L generally is not affected by transactions involving stock. By "discount" I presume you mean repurchase price as compared to the "book" value. That is normally entered into an account titled something like "Additional Paid-in Capital" or something similar.

The preferred stock is recorded in an account at "book" value with the additional recorded in a separate account as discussed above.

I wanted to go ahead and respond to your question because I have taken 'way too long to respond. If my response is too brief, please ask a follow-up and let me know and I can provide additional information. I was  not able to find a good source I could refer you to regarding this. I googled "repurchase preferred stock." The sites I found discussed around the issue, but did not provide a clear answer.