In general, a variable interest entity is subject to consolidation if it has:

Question

Options

• Aan insufficient amount of equity
• Ba group of equity owners that are unable to make decisions
• Cequity that does not absorb the entity's losses or receive the entity's benefits
• DAll of the above

• A
  10% (5)
• B
  2% (1)
• C
  6% (3)
• D
  82% (40)

Explanation

Option D is correct because each of the three conditions independently qualifies an entity as a Variable Interest Entity (VIE) subject to consolidation under ASC 810 - meaning any one of them is sufficient, and all three are valid triggers. A, B, and C are not wrong distractors; they are all correct, which is precisely why "All of the above" is the answer.

• A is correct: Insufficient equity at risk means the entity relies on subordinated financial support to operate, a hallmark VIE characteristic.
• B is correct: If equity holders lack the power to make decisions about the entity's significant activities, their equity is not substantive, making it a VIE.
• C is correct: Equity that neither absorbs losses nor receives residual returns is non-substantive - the entity's risks and rewards flow elsewhere, triggering VIE treatment.

Memory tip: Think of the three VIE triggers as the "3 Ds" - Deficient equity, Disenfranchised owners, and Disconnected returns. If any "D" applies, the entity is likely a VIE requiring consolidation by whoever holds the controlling variable interest (the primary beneficiary).

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