Question 1

The consolidation process for VIE's includes the elimination of all inter-entity transactions as would be the case for control based on stock ownership&#8203;

Accepted Answer

In the consolidation process for Variable Interest Entities (VIEs), similar to consolidation based on control through stock ownership, all inter-entity transactions are eliminated to present the financial statements as if the entities are a single economic entity.

Question 2

If the VIE was not a business as de&#64257;ned by ASC 819-10-20 which means it is likely a not for pro&#64257;t entity, there is no goodwill recorded.&#8203;

Accepted Answer

Goodwill is only recorded for businesses as defined by ASC 819-10-20. If the VIE is a not-for-profit entity, there is no goodwill recorded.

Question 3

Income of the consolidated company is distributed based on contractual terms, not the Primary Company ownership of VIE common stock.&#8203;

Accepted Answer

The income of the consolidated company is distributed based on the contractual terms agreed upon, regardless of the primary company's ownership of VIE common stock.

Question 4

In a VIE, the majority of losses or income &#64258;ow to the primary bene&#64257;ciaries, not the residual interest shareholders shareholder.The distribution of income is not based on common stock ownership.Instead, it is based on contractual agreements that could include interest on loans, management fees or a de&#64257;ned percentage of revenue or income.

Accepted Answer

As stated in the sentence, the majority of losses or income flow to the primary beneficiaries and not the residual interest shareholders, and the distribution of income is based on contractual agreements rather than common stock ownership.

Question 5

The accounts of the VIE are adjusted to fair value on the date control is achieved.&#8203;

Accepted Answer

This is true according to US GAAP accounting rules for variable interest entities (VIEs). When control is achieved over a VIE, the accounts must be adjusted to fair value in the acquirer's financial statements.

Question 6

The primary beneficiary does not consolidate its interest in a VIE into their consolidated financial statements.

Accepted Answer

The primary beneficiary is required to consolidate its interest in a VIE into their consolidated financial statements if it meets certain criteria such as having control over the VIE. Therefore, the statement "the primary beneficiary does not consolidate its interest in a VIE into their consolidated financial statements" is false.

Question 7

Consolidation procedures are applied to controlling ownership interests in Variable Interest Entities.&#8203;

Accepted Answer

Consolidation procedures are used to consolidate the financial statements of a company and its subsidiaries, including Variable Interest Entities. These procedures help to ensure that the controlling interest and financial position of the company are accurately represented in the consolidated financial statements.

Question 8

The primary bene&#64257;ciary has control of the variable interest entity (VIE) based on its power to control the activities of the VIE and the obligation to absorb losses and receive bene&#64257;ts from the VIE.&#8203;

Accepted Answer

The primary beneficiary of a VIE has both control and economic interest in the VIE, which means they have the power to direct activities that most significantly affect the VIE's economic performance and have an obligation to absorb losses or receive benefits from the VIE that could be significant to the VIE. Therefore, the statement is true.

Question 9

The primary bene&#64257;ciary will likely record its share of VIE interest revenue on its books.&#8203;

Accepted Answer

If the primary beneficiary has a variable interest in the VIE and is required to consolidate the VIE, then it must record its share of VIE interest revenue on its books. This is because the primary beneficiary is deemed to have economic control over the VIE and is responsible for the VIE's activities. Therefore, any revenues generated by the VIE must be recognized by the primary beneficiary.

Question 10

The entity having control of a VIE is referred to as the parent company.&#8203;

Accepted Answer

The entity having control of a Variable Interest Entity (VIE) is referred to as the primary beneficiary, not the parent company.

Deck 24: Variable Interest Entities