What are ‘Mandatorily Redeemable Shares’
Mandatorily redeemable shares are shares owned by an individual or entity which are required to be redeemed for cash or another such property at a stated time or following a specific event. Mandatorily reedemable shares are often issued by employers as a sort of compensation kicker to employees; however, the employer would require the employees to redeem these shares for cash or bonds, for example in the case of certain prescribed events or timelines.
Explaining ‘Mandatorily Redeemable Shares’
One example of a situation where an employer would issue manditorily redeemable shares would be in the case of an employee quitting the firm. The employer would excercise its “call” option on these shares forcing the exiting employee to sell back his or her company shares. An employer might do this in a situation where the shares are restricted and greatly in the money, or if it is a closely-held company with relatively few shares in float.
Mandatorily Redeemable Shares FAQ
What are mandatorily redeemable shares?
What is a redeemable stock?
Are redeemable shares debt or equity?
How is redeemable preferred stock accounted for?
How is preferred stock reported on the balance sheet?
What is the difference between cumulative preferred stocks and noncumulative preferred stocks?
Further Reading
The effect of financial statement classification of mandatorily redeemable preferred stock on financial analysts’ stock price judgments: An experimental analysis. –
elibrary.ru [PDF] … This study integrates research from psychology and financial economics to make specific predictions of the differential effect of classifying a new issue of mandatorily redeemable preferred stock … a liability, owners” equity, or between liabilities and owners” equity(ie, “mezzanine …Debt and equity characteristics of mandatorily redeemable preferred stock –
link.springer.com [PDF] … This study integrates research from psychology and financial economics to make specific predictions of the differential effect of classifying a new issue of mandatorily redeemable preferred stock … a liability, owners” equity, or between liabilities and owners” equity(ie, “mezzanine …The economic consequences of the statement of financial accounting standards (SFAS) No. 150 –
link.springer.com [PDF] … This study integrates research from psychology and financial economics to make specific predictions of the differential effect of classifying a new issue of mandatorily redeemable preferred stock … a liability, owners” equity, or between liabilities and owners” equity(ie, “mezzanine …Evidence on the role of taxes on financing choice: Consideration of mandatorily redeemable preferred stock –
onlinelibrary.wiley.com [PDF] … This study integrates research from psychology and financial economics to make specific predictions of the differential effect of classifying a new issue of mandatorily redeemable preferred stock … a liability, owners” equity, or between liabilities and owners” equity(ie, “mezzanine …The Impact of Debt-Equity Reporting Classifications on the Firm’s Decision to Issue Hybrid Securities –
www.tandfonline.com [PDF] … This study integrates research from psychology and financial economics to make specific predictions of the differential effect of classifying a new issue of mandatorily redeemable preferred stock … a liability, owners” equity, or between liabilities and owners” equity(ie, “mezzanine …An examination of mandatorily convertible preferred stock –
onlinelibrary.wiley.com [PDF] … This study integrates research from psychology and financial economics to make specific predictions of the differential effect of classifying a new issue of mandatorily redeemable preferred stock … a liability, owners” equity, or between liabilities and owners” equity(ie, “mezzanine …-
Is the employer always able to call back mandatorily redeemable shares?
No, there is a specific event or timeline that must occur first.
Where can you find more information on this topic?
You can find more information on this topic at FASB website.
What is the topic of this article?
The topic of this article is mandatorily redeemable shares.
When was Statement No. 15 released?
Statement No. 15 was released in February, 221.
How do you classify a security as mandatorily redeemable?
A security is classified as mandatorily redeemable if it meets all three criteria listed in paragraph B(2) of FASB ASC Topic 815-40-35-1a .
What does Statement No. 15 cover?
Statement No. 15 covers classification and measurement of mandatorily redeemable securities .
What are mandatorily redeemable shares?
Mandatorily redeemable shares are shares owned by an individual or entity which are required to be redeemed for cash or another such property at a stated time.
What are some examples of securities that would be classified as mandatorily redeemable under ASC Topic 815-40 ?
Some examples include convertible debt, mandatory convertible preferred stock, and mandatory redemption preferred stock .
Are mandatorily redeemable shares issued by employers as compensation kickers to employees?
Yes, they can be.
What does it mean when an employer calls back manditorily redeemable shares?
It means the employee will have to sell their company's stock back to the company.
How are these types of securities measured at fair value through earnings when they meet the criteria for classification as mandatorily redeemable ?
These types of securities are measured at fair value through earnings when they meet the criteria for classification as mandatorily redeemable using a model similar to that used for other equity instruments with readily determinable fair values (see paragraphs B(3) and C(3)(b)–C(3)(d) below). However, because there is no active market for these types of securities, their fair values cannot be reliably measured or verified by reference to observable inputs (paragraph C(5)). Therefore, an entity must use its own assumptions about how likely it is
