Distinguishing Liabilities from Equity

Question 1

Which of the following financial instruments must be presented in the balance sheet as liabilities?

Answer 1

Mandatorily redeemable financial instruments

Obligations to repurchase the issuer’s equity shares by transferring assets

Certain obligations to issue a variable number of shares

Question 2

A mandatorily redeemable financial instrument, such as mandatorily redeemable preferred stock, must be classified as a liability (with proper disclosure) unless

Answer 2

redemption is required to occur only upon the liquidation or termination of the reporting entity

Question 3

An entity must classify as a liability a financial instrument, other than an outstanding share, that, at inception

Answer 3

embodies an obligation to repurchase the issuer’s equity shares, or is indexed to such an obligation and

requires or may require the issuer to settle the obligation by transferring assets

Question 4

A financial instrument that embodies an unconditional obligation that the issuer must or may settle by issuing a variable number of its equity shares must be classified as a liability if, at inception, the monetary value of the obligation is based solely or predominantly on

Answer 4

A fixed monetary amount known at inception

Variations in something other than the fair value of the issuer’s equity shares

Variations inversely related to changes in the fair value of the issuer’s equity shares

Question 5

What FASB Number is this?

Answer 5

480