Should preferred stock be classified as debt or equity/Does it matter if the classification is being made by the firm\'s a. management b. creditors, or c.equity investors? Please explain. Solution The preference shares should be classified into Equity since because those shareholders will not get the fixed income when there are no sufficient profits on hand to distribute. In any case like Managemnet , creditors & Equity investors the preference stock shall be classified as Equity and not as Debt..