Good day everyone,
Apologies if i am posting in wrong thread but this is my first post, so please understand 
I am very confused right now and was hoping i can get some help from you all.
So i am looking at one of the scenario examples of equity method accounting. Equity method accounting says that the difference between cost of investment and the net book value of proportionate share of investment be accounted as basis difference i.e. the investor will deduct this basis difference from the net income pick up (cost of investment is higher than book value in this example).
So how does it work in the scenario where say if the investor sold off a portion of business to XYZ investee and in return got cash+common stock+preferred stock. And the preferred stock in this case is deemed to be “Not in Substance Common Stock” since it has certain liquidation features and limitations on convertibility to common stock and receives dividends which common stock doesnt.
the accounting rules that say basis difference should be accounted for common stock and in substance common stock but doesnt specifically say if preferred stock which is not in substance common stock should be excluded.
if investor paid $1000 to investee to acquire 100 shares of common stock out of total 1000 outstanding common shares and acquired 50 preferred stocks, should we not apply the basis difference as a whole to both common and preferred stock?