F4 M3 Flashcards
>50% of voting stock acquired (controlling interest)
Do not consolidate if the sub is in legal reorganization, bankruptcy, or the sub operates
under severe foreign restrictions
Noncontrolling interest is recorded at FV in the equity section of the consolidated BS,
separately from the parent’s equity
A variable interest entity (VIE) refers to a legal business structure in which an investor
has a controlling interest despite not having a majority of voting rights
A VIE either does not have investors w/voting rights or lacks the financial resources to
support its activities
The holder of the VIE is the primary beneficiary if it has the power to direct the
activities of a VIE that most significantly impacts the entity’s economic
performance, and the comp absorbs the expected VIE losses or receives the
expected VIE residual returns (they must consolidate the VIE)
Legal entities not subject to consolidation of VIEs: Nonprofit orgs and employee benefit
plans
VIEs can’t finance their own activities and also can’t make decisions
Steps to consolidating a VIE: (1) Identify if a variable interest exists (2) If a VI exists,
determine if the business entity classifies as a VIE (3) Once all above are established,
the primary beneficiary is recognized and then consolidates the VIE
It is possible for a sub owned by a parent to have their own FS along w/the parent
having their own FS (the parent would be the one showing the consolidated FS)
If a parent comp consolidates with a smaller comp and that smaller comp consolidates
with another comp, the parent company must consolidate with both companies (this
applies even if the parent company owns an investment/insurance company)
