The FASB has issued an Exposure Draft that is intended to provide guidance on how an entity should measure paid-in-kind dividends on equity-classified preferred stock. As current GAAP do not address how to initially measure paid-in-kind dividends on equity-classified preferred stock, diversity in practice exists.

The proposed ASU would require that paid-in-kind dividends on equity-classified preferred stock be measured on the paid-in-kind dividend rate stated in the preferred stock agreement.  For example, if a preferred stock agreement specifies that paid-in-kind dividends are calculated by multiplying the stated rate noted in the agreement by the liquidation value of the outstanding stock, also typically noted in the agreement, an entity would measure the paid-kind-dividend at that amount.

The effective date of the proposed ASU has not yet been determined.  The proposed ASU would be applied either prospectively upon adoption or under a modified retrospective basis.  Under the modified retrospective basis, an entity would be required to recast prior reporting periods presented and recognize a cumulative-effect adjustment to equity as of the beginning of the earliest period presented for any equity-classified preferred stock that is outstanding as of the initial application date.  

The full text of the Exposure Draft can be found here.

 

Published: 10/28/2025

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