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X has 10 shareholders, each of whom owns 100 of its 1,000 outstanding shares of common stock (worth $100 per share). No other stock is outstanding. Determine whether the securities described in the situations below are debt or equity of X (support your answer with citations as necessary).
(a) X issues a secured standard form note to the bank promising unconditionally to repay in five years $1 million borrowed, plus interest at the bank's prime rate plus one percent.
(b) X issues to the public for cash $1 million worth of "pure preferred" stock (nonvoting, nonparticipating, nonconvertible), callable in five years at par, paying an 18% cumulative dividend.
(c) In return for a transfer of $1 million, X issues an unsecured promissory note for $1 million to Mr. Jones, a well-known local venture capitalist, payable in 10 years with interest keyed to X's profitability. The note is subordinated to all other debt. X could not have borrowed this amount on these terms from a bank.
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A? The effect of incorrect recognition of revenue on financial reportssk question #Minimum 100 words accepted#
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