Distinguishing Liabilities from Equity

Question 1

Manditorily reedeemable shares are classified as liabilities if both…

Answer 1

They are obligations to repurchase the firms equity shares AND they require or may require an obligation settlement via transfer of assets.

Question 2

An obligation to issue shares worth a fixed dollar amount in return for the purchase of goods on credit is recorded as debt or equity?

Answer 2

Debt/Liability

Question 3

An obligation to issue a fixed number of shares in return for the purchase of goods on credit is recorded as debt or equity?

Answer 3

Equity, because the supplier is accepting the risk of change in stock value. We have no risk.

Question 4

Under IFRS if a financial instrument requires the issuer to _____ cash or other financial assets then the instrument is classified as a liability.

Answer 4

Transfer

Question 5

IFRS does not require precise information amount the separate debt and equity values.

Answer 5

True

Question 6

When a firm sells a put option, a debit to OE is recorded for the FV of the option,

Answer 6

False, a credit to a liability