Download Topic No. D-82 Topic: Effect of Preferred Stock Dividends

Topic No. D-82
Topic: Effect of Preferred Stock Dividends Payable in Common Shares on
Computation of Income Available to Common Stockholders
Date Discussed: September 23, 1999
The FASB staff has received inquiries on whether preferred stock dividends that an
issuer has paid or intends to pay in its own common shares should be deducted from
net income (or added to the amount of a net loss) in computing income available to
common stockholders pursuant to paragraphs 8 and 9 of FASB Statement No. 128,
Earnings per Share. In certain cases, the dividends may be payable in common shares
or cash at the issuer's option.
Paragraph 171 of Statement 128 defines income available to common stockholders as
"income (or loss) from continuing operations or net income (or net loss) adjusted for
preferred stock dividends." The FASB staff believes that an adjustment to net income
or loss for preferred stock dividends is required in accordance with the provisions in
paragraph 9 of Statement 128 for all preferred stock dividends, regardless of the form
of payment.
The staff notes that the adjustment to net income (or net loss) for preferred stock
dividends payable in common stock in computing income available to common
stockholders is consistent with the treatment of common stock issued for goods or
services.
The guidance in this announcement should be applied by restating
previously reported earnings per share.
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