VB Ltd.raises $150,000 by issuing a financial instrument that pays interest at a rate of 8% per year to the investor.At the end of the fourth year, the financial instrument is retired for $155,000.If the financial instrument is treated as debt then:
A)Retained Earnings is reduced as the interest payment is treated as a dividend distribution
B)The repayment will decrease owners' equity
C)Shareholders' equity is increased at issuance
D)The interest payment decreases retained earnings

Question

Quizplus · Accepted Answer

Interest payments on debt reduce retained earnings because they are treated as an expense on the income statement, reducing the net income available to be retained by the company.

VB LtdRaises $150,000 by Issuing a Financial Instrument That Pays Interest