70.2K

Verified Solution

Link Copied!

Question 1 Not yet answered Marked out of 10.00 Determination of whether a legal entity is a variable interest entity Assume a Legal Entity's capital structure consists of the following accounts: Short-term nate payable 567.500 Long-term note payable 270,000 Mandatorily redeemable preferred stock 101,250 Common stock 27,000 Additional paid in capital 67.500 Retained earings 13.500 Total liabilities and equity 5546,750 Note that FASB ASC 480 ("Distinguishing Liabilities from Equity requires mandatorily redeemable preferred stock to be classified as a liability for financial reporting purposes. Unless otherwise indicated, each of the following parts of this question is independent a. What is the maximum amount of expected losses that the Legal Entity can expect to sustain without being considered a variable interest entity (VIE)? OS108,000 O$546,750 O$337,500 O$209.250 b. What is the maximum amount of expected losses that the Legal Entity can expect to sustain if the lender of the long term note payable is the sole shareholder of the Legal Entity? O$546,750 O$337,500 O$100,000 O$209,250 - What is the maximum amount of expected losses that the Legal Entity can expect to sustain if the long term note payable is convertible to common equity at the option of the holder of the note? [Note that FASB ASC 470-20 (Debt with Conversion and Other Features requires convertible debt to be classified as a liability for financial reporting purposes.] O$337,500 O$108,000 O$546,750 O209.250

Answer & Explanation Solved by verified expert

See Answer