Skip to main content

Business Accounting ADV.FIN.ACCT.LL W/CONNECT+PROCTORIO PLUS

The financial reporting standards associated with accounting for variable interest entities. Introduction: H Corporation needed to build a new production facility. Because it already had a relatively high debt ratio, the company decided to establish a joint venture with RC Bank. This arrangement permitted the joint venture to borrow $30,000,000 for 20 years on a fixed-interest- rate basis at a rate nearly 2 percent less than H would have paid if it had borrowed the money. RC Bank purchased 100 percent of the joint venture equity for $200,000, and H provided a guarantee of the debt to the bondholders and a guarantee to RC Bank that it would earn a 20 percent annual return on its investment. The consolidated income statement or H will not comprise the lease payments as an operating expense but comprise the depreciation expense on a production facility and the interest expense for the interest payments made on the debt of the joint venture. Borrowing by variable interest entities: Memo: To: President H Corporation From: AAA, Accounting Staff Re: Consolidation of Joint-Venture H Corporation and RC bank have set up a joint venture which has taken a debt of amount $30,000,000 and constructed a new production facility. The facility is leased for 10 years to H. The annual lease payment is documented by H as operating expenses and is documented as a contingent liability in the notes to financial statements as a guarantee of the borrowed amount of the joint venture. The lease agreement of the joint venture with H presents the requirement for H to consolidate the joint venture with its own operations. The RC bank owns 100% of the equity of the joint venture but has less than 1% of the contribution to the total assets of the joint venture. The normal situation states that investment of less than 10% in the total assets of the equities is considered insufficient to allow the entity to finance its activities. In this circumstance, H guarantees the borrowed amount of $30,000,000 by the joint venture and has guaranteed an annual return on the equity investment of RC bank to 20 percent. These results in absorbing the losses by Corporation H which are incurred by the joint venture and sets up H Corporation as the beneficiary of the entity at the primary level. The FASB states that the entity should absorb the losses if occurred. The consolidation of joint venture results in comprising the production facility among the assets or H and the amount borrowed as a portion of the long-term liabilities. RC bank holds the claim on the net assets or the joint venture which is documented as non-controlling interest. The consolidated income statement or H will not comprise the lease payments as an operating expense but comprise the depreciation expense on a production facility and the interest expense for the interest payments made on the debt of the joint venture.

The financial reporting standards associated with accounting for variable interest entities. Introduction: H Corporation needed to build a new production facility. Because it already had a relatively high debt ratio, the company decided to establish a joint venture with RC Bank. This arrangement permitted the joint venture to borrow $30,000,000 for 20 years on a fixed-interest- rate basis at a rate nearly 2 percent less than H would have paid if it had borrowed the money. RC Bank purchased 100 percent of the joint venture equity for $200,000, and H provided a guarantee of the debt to the bondholders and a guarantee to RC Bank that it would earn a 20 percent annual return on its investment. The consolidated income statement or H will not comprise the lease payments as an operating expense but comprise the depreciation expense on a production facility and the interest expense for the interest payments made on the debt of the joint venture. Borrowing by variable interest entities: Memo: To: President H Corporation From: AAA, Accounting Staff Re: Consolidation of Joint-Venture H Corporation and RC bank have set up a joint venture which has taken a debt of amount $30,000,000 and constructed a new production facility. The facility is leased for 10 years to H. The annual lease payment is documented by H as operating expenses and is documented as a contingent liability in the notes to financial statements as a guarantee of the borrowed amount of the joint venture. The lease agreement of the joint venture with H presents the requirement for H to consolidate the joint venture with its own operations. The RC bank owns 100% of the equity of the joint venture but has less than 1% of the contribution to the total assets of the joint venture. The normal situation states that investment of less than 10% in the total assets of the equities is considered insufficient to allow the entity to finance its activities. In this circumstance, H guarantees the borrowed amount of $30,000,000 by the joint venture and has guaranteed an annual return on the equity investment of RC bank to 20 percent. These results in absorbing the losses by Corporation H which are incurred by the joint venture and sets up H Corporation as the beneficiary of the entity at the primary level. The FASB states that the entity should absorb the losses if occurred. The consolidation of joint venture results in comprising the production facility among the assets or H and the amount borrowed as a portion of the long-term liabilities. RC bank holds the claim on the net assets or the joint venture which is documented as non-controlling interest. The consolidated income statement or H will not comprise the lease payments as an operating expense but comprise the depreciation expense on a production facility and the interest expense for the interest payments made on the debt of the joint venture.

Solution Summary: The author explains the financial reporting standards associated with accounting for variable interest entities.

ADV.FIN.ACCT.LL W/CONNECT+PROCTORIO PLUS

ADV.FIN.ACCT.LL W/CONNECT+PROCTORIO PLUS

12th Edition

ISBN: 9781266380570

Author: Christensen

Publisher: MCG

See similar textbooks

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

Blurred answer

Chapter 8, Problem 8.1C

Chapter 8, Problem 8.4C

Students have asked these similar questions

Describe any one threat/risk in either the revenue cycle (i.e., in sales and cash collection activities) or the expenditure cycle (i.e., in purchases or cash disbursement activities)

Need help with this accounting question not use ai

Can you please answer the financial accounting question?

Chapter 8 Solutions

ADV.FIN.ACCT.LL W/CONNECT+PROCTORIO PLUS

Ch. 8 - Prob. 8.1Q Ch. 8 - What is meant by a constructive bond retirement in...Ch. 8 - Prob. 8.3Q Ch. 8 - Prob. 8.4Q Ch. 8 - When a parent company sells land to a subsidiary...Ch. 8 - Prob. 8.7Q Ch. 8 - Prob. 8.8Q Ch. 8 - Prob. 8.9Q Ch. 8 - Prob. 8.10Q Ch. 8 - Prob. 8.11Q

Ch. 8 - How is the amount of income assigned to the...Ch. 8 - Prob. 8.13Q Ch. 8 - How would the relationship between interest income...Ch. 8 - Prob. 8.15Q Ch. 8 - Prob. 8.16Q Ch. 8 - Prob. 8.17Q Ch. 8 - Prob. 8.18Q Ch. 8 - Prob. 8.1C Ch. 8 - Prob. 8.2C Ch. 8 - Prob. 8.4C Ch. 8 - Prob. 8.1E Ch. 8 - Bond Sale from Parent to Subsidiary (StraightLine...Ch. 8 - Computation of Transfer Price (Effective Interest...Ch. 8 - Prob. 8.2AE Ch. 8 - Prob. 8.3E Ch. 8 - Bond Sale at Discount (Straightline Method) Assume...Ch. 8 - Evaluation of Intercorporate Bond Holdings...Ch. 8 - Prob. 8.5.1E Ch. 8 - Prob. 8.5.2E Ch. 8 - MultipleChoice Questions (Effective Interest...Ch. 8 - Prob. 8.5.4E Ch. 8 - Prob. 8.5.5E Ch. 8 - Prob. 8.5.6E Ch. 8 - Prob. 8.5.1AE Ch. 8 - Prob. 8.5.2AE Ch. 8 - Prob. 8.5.3AE Ch. 8 - Prob. 8.5.4AE Ch. 8 - Prob. 8.6.1E Ch. 8 - Prob. 8.6.2E Ch. 8 - MultipleChoice Questions (Effective Interest...Ch. 8 - Prob. 8.6.1AE Ch. 8 - Prob. 8.6.2AE Ch. 8 - Prob. 8.6.3AE Ch. 8 - Prob. 8.7E Ch. 8 - Prob. 8.7AE Ch. 8 - Prob. 8.8E Ch. 8 - Prob. 8.8AE Ch. 8 - Prob. 8.9E Ch. 8 - Prob. 8.9AE Ch. 8 - Prob. 8.10E Ch. 8 - Prob. 8.10AE Ch. 8 - Prob. 8.11E Ch. 8 - Prob. 8.11AE Ch. 8 - Evaluation of Bond Retirement (Effective Interest...Ch. 8 - Prob. 8.12AE Ch. 8 - Prob. 8.13E Ch. 8 - Prob. 8.13AE Ch. 8 - Prob. 8.14P Ch. 8 - Prob. 8.14AP Ch. 8 - Prob. 8.15P Ch. 8 - Prob. 8.15AP Ch. 8 - Prob. 8.16P Ch. 8 - Prob. 8.16AP Ch. 8 - Prob. 8.17P Ch. 8 - Prob. 8.17AP Ch. 8 - Prob. 8.18P Ch. 8 - Prob. 8.18AP Ch. 8 - Prob. 8.19AP Ch. 8 - Prob. 8.20P Ch. 8 - Prob. 8.20AP Ch. 8 - Prob. 8.21P Ch. 8 - Prob. 8.21AP Ch. 8 - Prob. 8.22AP Ch. 8 - Prob. 8.22BP Ch. 8 - Prob. 8.23P Ch. 8 - Prob. 8.23AP Ch. 8 - Prob. 8.24P Ch. 8 - Prob. 8.24AP Ch. 8 - Intercorporate Inventory and Debt Transfers...Ch. 8 - Intercorporate Inventory and Debt Transfers...Ch. 8 - Prob. 8.26P Ch. 8 - Prob. 8.26AP Ch. 8 - Prob. 8.27.1BP Ch. 8 - Prob. 8.27.2BP Ch. 8 - Prob. 8.27.3BP Ch. 8 - Prob. 8.27.4BP Ch. 8 - Prob. 8.27.5BP Ch. 8 - Prob. 8.27.6BP Ch. 8 - Prob. 8.27.7BP Ch. 8 - Prob. 8.27.8BP Ch. 8 - Prob. 8.27.9BP Ch. 8 - Prob. 8.27.10BP Ch. 8 - Prob. 8.28P Ch. 8 - Prob. 8.28AP Ch. 8 - Prob. 8.29BP Ch. 8 - Prob. 8.30BP

Knowledge Booster

Background pattern image

Similar questions

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Financial Management: Theory & Practice
Finance
ISBN:9781337909730
Author:Brigham
Publisher:Cengage

Text book image

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:9781337514835

Author:MOYER

Publisher:CENGAGE LEARNING - CONSIGNMENT

Text book image

Intermediate Financial Management (MindTap Course...

Finance

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Cengage Learning

Text book image

Financial Management: Theory & Practice

Finance

ISBN:9781337909730

Author:Brigham

Publisher:Cengage

SEE MORE TEXTBOOKS