What is Mandatorily redeemable shares?
In short
Mandatorily redeemable shares are shares, usually preferred stock, that the issuer must redeem for cash on a fixed date or on an event certain to occur. They are classified as liabilities, not equity.
Key takeaways
- Dividends on them are reported as interest expense.
- Shares redeemable only on an uncertain event, or at the holder's option, aren't automatically liabilities; public companies may present them between liabilities and equity.
- Obligations to issue a variable number of shares worth a fixed amount are also liabilities.
Where it's tested
FAR: Equity & Earnings Per Share — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company has net income of $600,000 and paid $50,000 in dividends on cumulative preferred stock during the year, none of which were declared. What amount should be used as the numerator for basic EPS?