Question: GM forms a separate legal entity, funded mostly by debt. The entity acquires a building and leases it to GM. GM guarantees the residual value

GM forms a separate legal entity, funded mostly by debt. The entity acquires a building and leases it to GM. GM guarantees the residual value of the building, and reports the lease as an operating lease.

If GM does not consolidate the entity, which effect does not occur?

a. GM's interest expense is understated.
b. GM's debt is understated.
c. GM's assets are understated.
d. GM's retained earnings are understated.

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