 Preferred stock has characteristics which differ from those of common stock. Preferred stockholders receive dividends before common stockholders. Preferred stockholders do not vote for board of directors. Preferred stockholders would receive residual claims, sometimes called liquidating dividends, before common shareholders. So preferred stock is an interesting investment vehicle. Often it is referred to as a hybrid investment security. This is because it has characteristics similar to debt and equity. It is like debt in that it receives a dividend of a fixed amount. That's similar to interest payments. Also, the preferred stockholder has preference over the common stockholder, just like a debt holder would. But it's also like equity in that debt holders have preference over preferred stockholders. And the dividend is not guaranteed like interest payments would be. So for accounting purposes, preferred stock is equity, but often finance treats it similar to debt. The issuance of preferred stock is similar to common stock with two differences. The par value is not an arbitrary value for preferred stock like it is for common stock. This is because preferred stock is often issued at its par value. Let's look at an example. In this example, the Wombats Corporation issued 1,000 shares of $50 par value preferred stock for $50,000. So cash is debited for $50,000 and preferred stock, which is always credited for its par value, which in this case is also $50,000. In this next example, the Wombats Corporation issued 1,000 shares of $50 par value preferred stock for $75,000. This is a pretty rare example in real life, but one you might find in a textbook. So cash is debited for $75,000 and preferred stock is credited for its par value, which in this case is $50,000. Then paid in capital in excess of par is credited for $25,000. From this last transaction and some amounts from the common stock example, the stockholders' equity section would look like this. Paid in capital section shows preferred stock at its par value and paid in capital in excess of par for preferred stock. Additionally, common stock is reported at its par value and paid in capital in excess of common stock is also shown. These accounts together are the total paid in capital balance. And finally, I just made up the retained earnings amount so we could complete the section.