Exciting Consolidation of Teal Corporation's Variable Interest Entity
What is the impact of Teal Corporation's primary beneficiary status on its balance sheet?
How does owning 25% of the VIE's voting stock affect Teal Corporation's financial position?
Impact of Teal Corporation's Primary Beneficiary Status
Teal Corporation's status as the primary beneficiary of the variable interest entity results in a significant impact on its balance sheet. By owning 25% of the VIE's voting stock, Teal Corporation is considered to have control over the entity, leading to consolidation of the VIE's financials with its own.
Teal Corporation's balance sheet initially showed total assets of $190,000, liabilities of $80,000, common stock of $15,000, and retained earnings of $95,000. With the addition of its $7,500 investment in the VIE, the total assets increased to $197,500.
Upon consolidation with the VIE's financials, the total assets of Teal Corporation and the VIE combined to $690,000, while the liabilities totaled $550,000. This consolidation resulted in the owner's equity of Teal Corporation increasing to $140,000.
The consolidation process showcases Teal Corporation's financial control and ownership status over the VIE, reflecting a stronger position in its balance sheet. The primary beneficiary status emphasizes Teal Corporation's influence on the VIE's financial matters.