Because of the confusion of recent FASB rules…and CFAI’s wishy washy writing on labeling this D or E… At issue, Redeemable Preferred should be treated as DEBT, not EQUITY correct? We treat Redeemable Preferred Stock as DEBT… not EQUITY. for this exam can somebody assist?
also redeemable preferred stock is COMPLETELY different from CONVERTIBLE preferred stock… correct?
Unless they have changed the rules in the last couple of years, it is nearly true that FASB requires you to treat redeemable preferred as debt (but there are some silly exceptions). More importantly, from a financial analyst’s perspective I would say that redeemable preferred is about the most junior of junior debt and treat it that way. In bankruptcy, it’s worth nothing. In near-bankruptcy it’s worth little. In good times, it’s debt.