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 equity then:
A)The repayment will decrease owners' equity
B)Long-term liabilities is increased at issuance
C)The interest payment decreases retained earnings
D)If premium on repayment was not known, it is recorded as a loss on the income statement

Question

Quizplus · Accepted Answer

The repayment of the financial instrument will decrease owners' equity because it is treated as equity, and the repayment is essentially a return of capital to the investors.

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