Overview

On December $12,2024,$ the Emerging Issue Task Force $($EITF$)$ received an agenda request from Deloitte relating to the measurement of paid$-$in$-$kind dividends $($PIK dividends$)$ on equity$-$classified preferred stock. The EIFT$$ Agenda Committee added this issue to EITS$$s agenda at its January $2025$ agenda committee meeting.

At the March $25,2025,$ EITF meeting, EITF$$ members will discuss this issue and will be asked to vote on whether they recommend that the FASB and a project to its technical agenda and address this issue using the EITF $$s recommended approach.

This issue Summary is organized as follows:

$1)$ Issue Background

$2)$ Alternatives

$3)$ Entity Scope

$4)$ Optional or Required Application

$5)$ Transaction and Early Adoption

$6)$ Next Steps

$7)$ Appendix A: Practitioner Guidance

For some preferred stock instruments, dividends are paid$-$in$-$kind rather than paid in cash. The issuer satisfies dividends payment obligations associated with these instruments either by issuing additional fungible preferred securities with the same terms as the original preferred security or by increasing the original preferred security$$s liquidation preference. Other than with respect to differences in the compounding terms, both payment methods are economically similar and are hereafter simply referred to as dividends that are payable in additional shares of preferred stock.

$1.$ Which alternative does the EITF support?

a$.$ Alternative A: PIK dividends should be measured at the fair value of the preferred shares issuable as of the date the dividends are recognized.

b$.$ Alternative B: PIK dividends should be measured on the basis of the stated dividends rate on the liquidation preference of the preferred stock instruments.

c$.$ Alternative C: the measurement of PIK dividends should depend on whether the PIK dividends are discretionary or non$-$ discretionary.

Entity Scope

$2.$ Does the EITF$$ agree that the recommended approach should apply to all entities?

$3.$ Does the EITF$$ agree that entities should be required to apply the recommended approach $?$

$4.$ Does the EITF$$ agree that transaction to the amendments discussed should be applied prospectively and that early adoption should be permitted.