Hi there, I need help with these questions. The relevant textbook is: Financial Accounting 9th edition Chapter 14: Accounting for financial instruments.

QUESTION 1:

Do you think that a reporting entity would prefer to classify a financial instrument as debt or equity? Why?

QUESTION 2:

Wedding Cake Ltd has its shares listed on a securities exchange. It has entered a contractual agreement to issue $10 million of its ordinary shares to Island Ltd in two years' time. The number of shares to be ultimately issued will depend on the market price of the shares in two years' time. Should Wedding Cake Ltd recognise a financial liability, or an equity instrument, in relation to this agreement?

QUESTION 3:

Arthur Ltd has the following statement of financial position:

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Statement of financial position before set-off Loans payable 1 000 000 Loans receivable 1 200 000 Shareholders' equity 1 000 000 Non-current assets 800 000 $2 000 000 $2 000 000 Assume that Arthur Ltd has an amount owing to Blayney Ltd of $300 000 and an amount receivable from Blayney Ltd of $400 000. Assuming a right of set-off exists, why would Arthur want to perform a set-off? What would be the impact on the debt-to-assets ratio