E3-2 Multiple-Choice Questions on Variable Interest Entities

Select the correct answer for each of the following questions.

1. Special-purpose entities generally

1. Have a much larger portion of assets financed by equity shareholders than do companies such as General Motors.
2. Have relatively large amounts of preferred stock and convertible securities outstanding.
3. Have a much smaller portion of their assets financed by equity shareholders than do companies such as General Motors.
4. Pay out a relatively high percentage of their earnings as dividends to facilitate the sale of additional shares.

2. Variable interest entities may be established as

1. Corporations.
2. Trusts.
3. Partnerships.
4. All of the above.

3. An enterprise that will absorb a majority of a variable interest entity's expected losses is called the

1. Primary beneficiary.
2. Qualified owner.
3. Major facilitator.
4. Critical management director.

4. In determining whether or not a variable interest entity is to be consolidated, the FASB focused on

1. Legal control.
2. Share of profits and obligation to absorb losses.
3. Frequency of intercompany transfers.
4. Proportionate size of the two entities.