In order to determine if,in substance,a complex financial instrument is debt,the answer should be yes 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?

Question

Quizplus · Accepted Answer

Convertibility into common shares would make the instrument qualify as equity rather than debt. Therefore, if the answer is yes for this question, it would not meet the criteria to be considered as debt. The other options (A, B, D) all pertain to obligations and requirements for repayment, which are characteristic of debt.

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