Understanding the Usage of a FASB Codification Project

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FASB Codification Project
5. FASB codification Project. A codification project is intended to give students experience with accounting research using the FASB database as well as practice facing the kinds of problems you may face as you enter the accounting profession. The problem is similar to what you will find in a CPA exam simulation where you need to identify the right citation in the accounting literature and then apply it in a practical setting.
Question 1 — Determine if Banana, Berry, or both, are required to apply the provisions of the variable interest entity (VIE) model in ASC 810-10 (Interpretation 46(R), as amended by Statement 167) to Cherry.The variable interest entity (VIE) is a legal and business structure where an entity has a controlling interest even when it does not have the majority of voting rights. ASC 810-10 (Interpretation 46(R), as amended by Statement 167) focuses on variable interest entities where enterprises are to analyze whether the variable interest or interests result in a controlling financial interest in a VIE (FASB). The primary beneficiary of a VIE is an enterprise that has “The power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance” and “The obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity” (FASB). ASC 810-10 requires the primary beneficiary to consolidate with the variable interest entity. While Banana and Barry each have 50% voting Banana is responsible for 80% of the earnings and losses of the joint venture 20 % to Berry. Consequently, the controlling financial interest is through other arrangements and not just the voting interests. Barry is the variable interest entity (VIE) and not Banana.Question 2 — Determine if Cherry is a VIE.Cherry is a VIE as it is an entity whose equity is not sufficient to support its operations. Banana and Berry's own equity in Cherry does not automatically translate to controlling g Cherry. However, but investors get a return on their investments. Cherry is also undercapitalized and required finance from other sources. Among the equity investors, there is the right to receive the expected return from the entity in the case of Variable Interest Entities (VIE). The VIEs make agreements with other entities.
Question 3 — If it is determined that Cherry is a VIE, which venturer, if either, should consolidate the entityASC 810-10-15-14 highlights that a legal entity is consolidated based on guidelines of the Variable Interest Entities.The VIE lacks sufficient equity investment at risk to permit the en...