QUESTION 5 Incomplete answer Marked out of 20.00 P Flag question Determination of whether a legal entity is a variable interest entity Assume a Legal Entity's capital structure consists of the following accounts: Short-term note payable Long-term note payable Mandatorily redeemable preferred stock Common stock Additional paid-in capital Retained earnings Total liabilities and equity 60,000 21,000 85,000 30,000 60,000 20,000 $276,000 Note that FASB ASC 480 (Distinguishing Liabilities from Equity") requires mandatorily redeemable preferred stock to be classified as a liability for financial reporting purposes. Unless otherwise indicated, each of the following parts of this question is independent a. What is the maximum amount of expected losses that the Legal Entity can expect to sustain without being considered a variable interest entity (VIE)? $276,000 $131,000 $195,000 $110,000 b. What is the maximum amount of expected losses that the Legal Entity can expect to sustain if the lender of the long term note payable is the sole shareholder of the Legal Entity? $131,000 $276,000 $11 0,000 $195,000 c. What is the maximum amount of expected losses that the Legal Entity can expect to sustain if the long term note payable is convertible to common equity at the option of the holder of the note? Why? (Note that FASB ASC 470-20 (Debt with Conversion and Other Features") requires convertible debt to be classified as a liability for financial reporting purposes.) $110,000 $195,000 $131,000 $276,000 Please answer all parts of the question. QUESTION 5 Incomplete answer Marked out of 20.00 P Flag question Determination of whether a legal entity is a variable interest entity Assume a Legal Entity's capital structure consists of the following accounts: Short-term note payable Long-term note payable Mandatorily redeemable preferred stock Common stock Additional paid-in capital Retained earnings Total liabilities and equity 60,000 21,000 85,000 30,000 60,000 20,000 $276,000 Note that FASB ASC 480 (Distinguishing Liabilities from Equity") requires mandatorily redeemable preferred stock to be classified as a liability for financial reporting purposes. Unless otherwise indicated, each of the following parts of this question is independent a. What is the maximum amount of expected losses that the Legal Entity can expect to sustain without being considered a variable interest entity (VIE)? $276,000 $131,000 $195,000 $110,000 b. What is the maximum amount of expected losses that the Legal Entity can expect to sustain if the lender of the long term note payable is the sole shareholder of the Legal Entity? $131,000 $276,000 $11 0,000 $195,000 c. What is the maximum amount of expected losses that the Legal Entity can expect to sustain if the long term note payable is convertible to common equity at the option of the holder of the note? Why? (Note that FASB ASC 470-20 (Debt with Conversion and Other Features") requires convertible debt to be classified as a liability for financial reporting purposes.) $110,000 $195,000 $131,000 $276,000 Please answer all parts of the
