The Fact That a Preference Share Is Redeemable

question 14

Multiple Choice

The fact that a preference share is redeemable:

• A) Makes it a financial liability.
• B) Makes it an equity instrument.
• C) Makes it a compound financial instrument.
• D) Does not automatically mean that it is a financial liability. The length of time until redemption is critical, because if it is greater than two years, it must be classified as an equity instrument.
• E) Does not automatically mean that it is a financial liability. Conditions and rights attaching to the share need to be considered before it can be classified as either a financial liability or equity instrument.

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Definitions:

Keynesian Model

An economic theory proposing that active government intervention is necessary to manage economic cycles and stabilize output by adjusting demand through fiscal and monetary policies.

Money

An officially issued legal tender generally accepted in exchange for goods and services and repayment of debts.

Checking Account Balances

The amount of money currently available in one’s checking account, reflecting all deposits and withdrawals made.

Traveler's Checks

A preprinted, fixed-amount check designed to allow the person signing it to make an unconditional payment to someone else as a result of having paid the issuer for that privilege.