Several years ago, R incorporated his sole proprietorship, receiving stock and debt as part of the transaction.In which of the following situations is the debt likely to be recharacterized as stock?

Question

Quizplus · Accepted Answer

The debt is likely to be recharacterized as stock if the proportion of debt to stock is significantly high, indicating that the "debt" essentially represents an equity interest in the company. In option A, an 85 percent debt to 15 percent stock ratio is unusually high and suggests that the debt is more akin to equity, making it the most likely scenario for recharacterization.

Several Years Ago, R Incorporated His Sole Proprietorship, Receiving Stock