1.Assume a Legal Entity's capital structure consists of the following accounts:

Short-term note payable $100,000

Long-term note payable. 400,000 Mandatorily redeemable preferred stock. 150,000

Common stock. 40,000

Additional paid-in capital. 100,000

Retained earnings. 20,000 Total liabilities and equity$810,000

What is the maximum amount of expected losses that the Legal Entity can expect to sustain without being considered a variable interest entity (VIE)?

Answer:

$160,000

($40,000 + $100,000 + $20,000)

My question:

Can someone explain why we only added the s.e. section? What would be the answer IF the legal entity is a VIE.

I don't really understand these calculations and terminology. I was explained that we would add up the equity section because that is the equity that is at risk.