F4 - M3 - Basic Consolidation Concepts

Question 1

Under the _______ model, consolidated financial statements are prepared when a parent- subsidiary relationship has been formed.

Answer 1

voting interest model,

Question 2

An investor is considered to have parent-subsidiary status when control over an investee is established or more than ____ percent of the voting stock of the investee has been acquired.

Answer 2

50

Question 3

Business combinations that do not establish 100 percent ownership of a subsidiary by a parent company result in a portion of the subsidiary’s equity (net assets) being attributable to __________ shareholders.

Answer 3

non-controlling

Question 4

A _________ is a corporation, partnership, trust, LLC, or other legal structure used for business purposes that either does not have equity investors with voting rights or lacks the sufficient financial resources to support its activities.

Answer 4

variable interest entity (VIE)

Question 5

The primary beneficiary is the entity which has the power to direct the activities of a variable interest entity that most significantly affect the entity’s economic performance and which absorbs the _____________.

Answer 5

primary beneficiary; expected VIE losses or receives the expected VIE residual returns.

Question 6

Once a company has established that it has a variable interest in a business entity that is a VIE, the primary beneficiary must be determined. The primary beneficiary must _____________.

Answer 6

consolidate the VIE

Question 7

What are the 3 attributes of a VIE?

Answer 7

1) Variable interest (financial stake). 2) in a VIE (lack basis entity items, 3) you are primary beneficiary

Question 8

What are the types of entities that are not subject to consolidate to consolidation as VIE? (5)

Answer 8

1) Non profit. 2) Employee Benefit plans 3) investment companies, 4) Separate acts of insurance life companies 5) Government organizaitons