Question

Which of the following statements in relation to subordinated debts is correct?

Multiple Choice

a. It is not possible to include an agreement that the redemption is void for a specific period.

b.The addition of subordinated debt can improve the credit rating of the issuing company.

c. Subordinated debt cannot be recorded on the balance sheet as equity.

d. Holders of subordinated debt rank behind holders of debentures and before holders of unsecured notes.

Answer 1

c. Subordinate debt cannot be recorded on the balancesheet as equity.

Because the balance sheet a firm's assets followed by its liabilities and owner's or shareholder's equity. As borrowed money, subordinated debt goes in the liabilities section. Current liabilities are listed first. Typically, senior debt is entered on the balancesheet next. Subordinated debt is listed last in the liabilities section in descending order of priority. When a business takes out a loan or sells bonds that are subordinated debt, the cash or property acquired with the borrowed funds is added capital and goes in the assets section.