1. A variable interest entity can take all of the following forms except a(n)
A) Trust.
B) Partnership.
C) Joint venture.
D) Corporation.
E) Estate.
2. All of the following are examples of variable interests except
A) Guarantees of debt.
B) Stock options.
C) Lease residual value guarantees.
D) Participation rights.
E) Asset purchase options.
3. Which of the following is not a potential loss or return of a variable interest entity?
A) Entitles holder to residual profits.
B) Entitles holder to benefit from increases in asset fair value.
C) Entitles holder to receive shares of common stock.
D) If the variable interest entity cannot repay liabilities, honoring a debt guarantee will produce a loss.
E) If leased asset declines below the residual value, honoring the guarantee will produce a loss.
4. Which of the following characteristics is not indicative of an enterprise qualifying as a primary beneficiary with a controlling financial interest in a variable interest entity?
A) The power to direct the most significant economic performance activities.
B) The power through voting or similar rights to direct activities which significantly impact economic performance.
C) The obligation to absorb potentially significant losses of the entity.
D) No ability to make decisions about the entity's activities.
E) The right to receive potentially significant benefits of the entity.
5. Which of the following statements is false concerning variable interest entities (VIEs)?
A) Sometimes VIEs do not have independent management.
B) Most VIEs are established for valid business purposes.
C) VIEs may be formed as a source of low-cost financing.
D) VIEs have little need for voting stock.
E) A VIE cannot take the legal form of a partnership or corporation.
6. Which of the following statements is true concerning variable interest entities (VIEs)?
1) The role of the VIE equity investors can be fairly minor.
2) A VIE may be created specifically to benefit its sponsoring firm with low-cost financing.
3) VIE governing agreements often limit activities and decision making.
4) VIEs usually have a well-defined and limited business activity.
A) 2 and 4.
B) 2, 3, and 4.
C) 1, 2, and 4.
D) 1, 2, and 3.
E) 1, 2, 3, and 4.
7. Which of the following is not an indicator that requires a sponsoring firm to consolidate a variable interest entity (VIE) with its own financial statements?
A) The sponsoring firm has the obligation to absorb potentially significant losses of the VIE.
B) The sponsoring firm receives risks and rewards of the VIE in proportion to equity ownership.
C) The sponsoring firm has the right to receive potentially significant benefits of the VIE.
D) The sponsoring firm has power through voting rights to direct the entity's activities that significantly impact economic performance.
E) The sponsoring firm is a primary beneficiary of the VIE.