Under Which of the Following Scenarios Would an Entity Not

question 96

Multiple Choice

Under which of the following scenarios would an entity not be classified as a variable interest entity?

• A) The equity investing firms do not have the obligation to absorb the expected losses of the variable interest entity if they occur.
• B) The investing firms do not have the right to receive the expected residual returns of the variable interest entity if they occur.
• C) The total equity investment at risk is sufficient to permit the variable interest entity to finance its activities without additional subordinated financial support from other parties.
• D) The equity investing firms do not have the direct or indirect ability to make decisions about the variable interest entity's activities through voting rights or similar rights.

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Definitions:

Units

Basic quantities or measures adopted to quantify and represent variables in quantitative analyses, such as units of measurement in physics or economic units in economics.

Profit-Maximizing

The process or strategy by which a firm determines the price and output level that returns the greatest profit.

Loss-Minimizing

A strategy aimed at reducing the negative impact or minimizing the losses in a business operation or an investment.

Quantity

The amount or number of a material or immaterial good or service.