In Order to Determine If,in Substance,a Complex Financial Instrument Is

question 29

Multiple Choice

In order to determine if,in substance,a complex financial instrument is equity,the answer should be no to all of the following except:

• A) Is the periodic return on capital obligatory?
• B) Is the debtor legally obligated to repay the principal at a fixed rate?
• C) Is the amount convertible into common shares?
• D) Is the debtor legally obligated to repay the principal at the option of the creditor?

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Definitions:

Fixed Costs

Costs that do not change with the level of output or activity, such as rent or salaries.

Units Produced

The number of complete items manufactured or produced within a given timeframe.

Cash Discount

A reduction in the invoice price offered by sellers to buyers as an incentive for early payment before the established due date.

Prompt Payment

The practice of paying invoices on time, which can help build good relationships with suppliers and might qualify the payer for discounts.