ch 6 Adv Fin Accting

in an acquisition date consolidation, a primary beneficiary will include valuations of its vie's assets, liabilities, at _____________ value.

fair

a business enterprise is required to consolidate the assets, liabilities, and results of operations of a vie in which it holds no equity interest if

it can exercise financial control over the vie in its role as primary beneficiary

control over a vie's decision making process is typically exercised through

power granted contractually to a primary beneficiary

under what general conditions does an entity qualify as a variable interest entity?

1. there is insufficient equity at risk to enable the entity to finance its activities without additional support 2. the equity investors lack the ability to exercise financial control over the entity

why do the risks and rewards from a vie often get distributed to the primary beneficiary rather than equity investors?

1. contractual arrangements often specify that the vie's risks and rewards go to the primary beneficiary 2. vie's may separate ownership from the vie's economic benefits and risks to enable beneficial contracting (e.g., financing) for a primary beneficiary 3. equity investors frequently bear little economic risk in the vie

variable interests entities are often established to provide

1. low cost financing for asset purchases 2. leasing arrangements 3. research and development arrangements

what characteristics of power finance company suggest that it qualifies as a variable interest entity?

1. the company was unable to obtain financing without additional financial support from twin peaks electric 2. the equity investor's ownership at risk is less than 10% of total assets 3. the equity investor bears little to no risk from ownership of the plant asset

in general, which of the following characteristics are needed to establish that an enterprise with an variable interest in a vie has a controlling financial interest?

1. the enterprise is obligated to absorb significant losses of the vie or is entitled to receive significant benefits from the vie 2. the enterprise has the power to direct the economically significant activities of the vie