Under Current GAAP,the Sponsor of a Securitization Entity (SE)will Have

question 118

Multiple Choice

Under current GAAP,the sponsor of a securitization entity (SE) will have to treat a securitization as a collateralized borrowing instead of a sale if it has

• A)the power to direct the activities of the SPE that most significantly impact the SPE's economic performance.
• B)the obligation to absorb significant losses or the right to receive significant benefits that potentially could be generated by the SPE.
• C)both the power to direct the activities of the SPE that most significantly impact the SPE's economic performance and the obligation to absorb significant losses or the right to receive significant benefits that potentially could be generated by the SPE.
• D)neither the power to direct the activities of the SPE that most significantly impact the SPE's economic performance or the obligation to absorb significant losses or the right to receive significant benefits that potentially could be generated by the SPE because securitizations are always treated as sales.

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Definitions:

Liquidation Transactions

Transactions that occur when a company is in the process of closing and its assets are being sold off.

Capital Distributions

Capital distributions are payments made by a corporation to its shareholders from its capital base, as opposed to payments made from earnings or profit.

Liquidation Expenses

Costs associated with disbanding a company or partnership, including selling off assets, paying off creditors, and distributing any remaining assets to shareholders or partners.

Deficit Capital Account

A situation where a company's capital account balance is negative, indicating that liabilities exceed assets.