If your company has preferred stock that pays dividends not in cash but in more preferred shares — paid-in-kind, or PIK — the number on your equity statement just got larger, and prior years just changed.
In April 2026, FASB issued ASU 2026-01, which requires PIK dividends on preferred stock to be measured at the fair value of the additional shares issued or issuable, not at their par or stated value, with retrospective application. For a founder with a PE-backed cap table or a small private company with investor preferred, that shifts retained earnings, EPS, and the trend you show a lender or buyer.
What Changed
Before ASU 2026-01: Many private companies measured the PIK dividend at par or at the stated amount, often $0.01 or $1.00 per share, even when the fair value of the preferred was a multiple. The PIK accretion was a small tick on the equity statement.
After ASU 2026-01: The PIK dividend is measured at the fair value of the additional preferred shares on the dividend date (or the date the right accrues, if that is the commitment date). If the preferred's fair value is $95 per share and the PIK is 8% on 100,000 shares, the annual PIK dividend is not $800 at par — it is $760,000 at fair value.
That amount reduces retained earnings (or increases accumulated deficit) and increases the carrying amount of the preferred stock, often as a deemed dividend that affects earnings per share and, for APIC, the allocation.
Who Is Affected
- PE-backed private companies with Series A/B preferred that accrues PIK at 6–12% instead of cash
- Founder-owned companies that issued preferred to an investor with a PIK election to preserve cash
- Small reporting issuers that have preferred outstanding, even outside a formal PE deal
If your preferred pays cash dividends, or if the PIK is at the holder's option and not accrued until elected, the ASU's scope is narrower — but if the PIK is cumulative and accruing, it is in scope.
The Accounting
At each PIK accrual or declaration:
Dr Retained Earnings (Deemed Dividend) $760,000
Cr Preferred Stock (Carrying Amount) $760,000 — or Cr Additional Paid-In Capital — Preferred depending on the preferred's classification
The entry does not hit net income — it is a transaction with owners — but it does affect EPS under ASC 260 and the carrying amount of preferred that a buyer will diligence. Net loss attributable to common shareholders grows by the PIK amount, even though no cash left the business.
Retrospective application: ASU 2026-01 requires retrospective restatement of prior periods' PIK amounts at fair value. A company that reported $2,000 per year in PIK at par must restate to, say, $760,000 per year, adjusting opening retained earnings and preferred carrying amount.
Fair value determination: For a private company, the preferred's fair value is not quoted. You will need a valuation — often a 409A or a preferred-specific valuation that considers the liquidation preference, participation, and PIK feature. That valuation must be as of the dividend date, not as of the last financing round.
Keep Your Finances Organized From Day One
A PIK dividend that was once a footnote is now a fair-value measurement that reshapes equity, EPS, and prior-year comparables. The companies that adopt cleanly are the ones whose cap table and equity ledger already tie to a valuation calendar.
Beancount.io keeps preferred issuances, accruals, and deemed dividends as auditable, version-controlled transactions that a valuation can anchor — so when the auditor asks for the retrospective restatement, the answer is a report, not a reconstruction. Get started for free and make the PIK that preserved cash visible where equity is measured.