ASH ACC 306 Week 4 Communication Case 18-10

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 Communication Case 1810 Should the present
two-category distinction between liabilities and
equity be retained? Group interaction. ? LO1The
current conceptual distinction between
liabilities and equity defines liabilities
independently of assets and equity, with equity
defined as a residual amount. The present
proliferation of financial instruments that
combine features of both debt and equity and the
difficulty of drawing a distinction have led many
to conclude that the present two-category
distinction between liabilities and equity should
be eliminated. Two opposing viewpoints are
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View 1 The distinction should be
maintained.View 2 The distinction should be
eliminated and financial instruments should
instead be reported in accordance with the
priority of their claims to enterprise
assets.One type of security that often is
mentioned in the debate is convertible bonds.
Although stock in many ways, such a security also
obligates the issuer to transfer assets at a
specified price and redemption date. Thus it also
has features of debt. In considering this
question, focus on conceptual issues regarding
the practicable and theoretically appropriate
treatment, unconstrained by GAAP.Required1.
Which view do you favor? Develop a list of
arguments in support of your view prior to the
class session for which the case is assigned.