Company A holds a variable interest in Entity B. Company A has the power to direct the activities that most significantly impact Entity B's economic performance and the obligation to absorb losses that could be significant to Entity B. However, Company A owns only 10% of the voting stock. Under ASC 810, should Company A consolidate Entity B?

Answer options:

Yes, because Company A is the primary beneficiary of the Variable Interest Entity (VIE).

No, because Company A does not own more than 50% of the voting stock.

No, unless Company A guarantees the debt of Entity B.

Yes, but only using the equity method.

How to approach this question

VIE Model Steps: 1. Is it a VIE? 2. Who is Primary Beneficiary (Power + Economics)? If yes to both, Consolidate.

Full Answer

A.Yes, because Company A is the primary beneficiary of the Variable Interest Entity (VIE).✓ Correct

Company A meets the definition of the Primary Beneficiary: it has the power to direct significant activities AND the obligation to absorb losses/right to receive benefits. Therefore, it must consolidate the VIE regardless of voting ownership.

Common mistakes

Applying the Voting Interest Model (50% rule) to a VIE.

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