Chapter 10 Section 3: Variable Interest Entities

Question 1

Define variable interest entity

Answer 1

Basically, the company’s equity/characteristics are strange

Question 2

Define primary beneficiary

Answer 2

The entity that has power over the VIE and gets profit or loss

Question 3

What are characteristics of a VIE?

Answer 3

1. Insufficient level of equity investment at risk
2. Inability to make decisions or direct activities
3. No obligation to absorb losses
4. No right to receive returns
5. Disproportional voting rights

Question 4

Who consolidates when there’s a VIE?

Answer 4

The primary beneficiary