Some financial instruments can be considered compound instruments in that they have features of both debt and shareholders' equity. The most common example encountered in practice is convertible debt-bonds or notes convertible by the investor into common stock. A topic of debate for several years has been whether:

View 1: Issuers should account for an instrument with both liability and equity characteristics entirely as a liability or entirely as an equity instrument depending on which characteristic governs.

View 2:Issuers should account for an instrument as consisting of a liability component and an equity component that should be accounted for separately.

A. Determine which view of the recording of convertible debt you prefer and develop a list of arguments in suppor of your view.

B. Use prectical and conceptually sound reasoing for your position. Do not include current FASB standing on the issue. You may consult other sources in support of your argument.