Pretzel acts as a sponsor in creating a special purpose entity (SPE) that will purchase Accounts Receivable from Pretzel. Under what circumstances will Pretzel be required to treat the SPE as a variable interest entity and consolidate it as its primary beneficiary . a.Pretzel is not entitled to any profits that the SPE earns b.Pretzel agrees to reimburse SPE shareholders in the event the SPE has losses. c.Pretzel receives money from SPE for the fair value of assets that Pretzel sells to it d.Pretzel has no voting rights or ability to direct SPE activities e.The SPE has stockholders equity equal to 20% of SPE assets choose one

Variable interest entity is a term used when an investor has controlling interest in the entity without having the voting rights. This interest can be for holding financial assets or to conduct R&D researches. They are related with specific purpose entity. The correct option is part D. Because Mr. P does not have the right to act and take controlling interest in the lawful business structure. It can act as primary beneficiary and can consolidate the transaction of entity so that shareholder can take decisions.

Answered: Pretzel acts as a sponsor in creating a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Pretzel acts as a sponsor in creating a special purpose entity (SPE) that will purchase Accounts Receivable from Pretzel. Under what circumstances will Pretzel be required to treat the SPE as a variable interest entity and consolidate it as its primary beneficiary .

	a.	Pretzel is not entitled to any profits that the SPE earns
	b.	Pretzel agrees to reimburse SPE shareholders in the event the SPE has losses.
	c.	Pretzel receives money from SPE for the fair value of assets that Pretzel sells to it
	d.	Pretzel has no voting rights or ability to direct SPE activities
	e.	The SPE has stockholders equity equal to 20% of SPE assets

choose one

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