Question

Which of the following is not a factor that is to be examined under Section 385...

Which of the following is not a factor that is to be examined under Section 385 to determine whether debt will be converted to equity?

A. The ratio of common stock to preferred stock
B. The ratio of debt to the corporation's equity
C. Whether the alleged debt is convertible into stock
D. Whether the alleged indebtedness is subordinated to any other corporate indebtedness
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Answer #1

Answer:A. The ratio of common stock to preferred stock

Sec.385 Factors :

(1) whether there is a written unconditional promise to pay on demand or on a specified date a sum certain in money in return for an adequate consideration in money or money’s worth, and to pay a fixed rate of interest,

(2) whether there is subordination to or preference over any indebtedness of the corporation,

(3) the ratio of debt to equity of the corporation,

(4) whether there is convertibility into the stock of the corporation, and

(5) the relationship between holdings of stock in the corporation and holdings of the interest in question.

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