In its 1990 discussion memorandum on distinguishing between liabilities and
In its 1990 discussion memorandum on distinguishing between liabilities and equity, the FASB posed the question, “Should the sharp distinction between liabilities and equity be effectively eliminated?” To do so would be consistent with the entity theory of equity and with the notion that the capital structure (debt versus equity) of a firm is irrelevant to users of financial information. Team Debate:
Team 1: Argue for elimination of the distinction between debt and equity. Support your argument by citing the entity theory of equity as well as the finance theory asserting that capital structure is irrelevant.
Team 2: Argue against elimination of the distinction between debt and equity. Support your argument by citing the proprietary theory of equity as well as the finance theory, asserting that capital structure is relevant.

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