Anna Maria Inc. (AMI) issued debt to raise money for an expansion of its manufacturing facilities. The debt bears interest at an annual rate of 5%. The debt, which is only to be repaid on liquidation of AMI, was issued at face value of $10,000,000. Which of the following best describes how this instrument would be valued and classified for financial reporting purposes? 

A. The instrument is reported as a liability and is measured at the present value of the interest payments, which would continue in perpetuity. 

B. The debt is, in substance, equity, because it is only to be repaid on liquidation of AMI. Therefore, $10,000,000 would be reported as equity on AMI's statement of financial position. 

C. The debt is, in substance, equity, because it is only to be repaid on liquidation of AMI. Therefore, the present value of the interest payments would be reported as equity on AMI's statement of financial position. 

D. The instrument is equal parts debt and equity. The interest represents a liability because it is an unavoidable obligation to pay cash. The principal, however, is equity because it is not required to be repaid. As the principal is $10,000,000 and the present value

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