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Explain if br is a variable interest entity or not

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Reference no: EM132948963

Bullworks sponsors the establishment of BR corporation. Bullworks sells its receivables to BR which is a special purpose entity. Other information:

1) Bullworks owns 5% of the owners equity of BR. Rodeo Corporation owns the remaining 95%.
2) Owners equity constitutes 3% of the total assets of BR, the remaining 97% of total assets is financed through debt securitized by the receivables that Bullworks sells to BR.

Circumstance

  • Bullworks agrees to absorb any losses that BR sustains and is willing to infuse BR with cash as necessary.
  • Rodeo's return on investment is limited to 5% with an excess attributed to Bullworks.
  • The Board of Directors composition is 6 appointed by Bullworks and 5 by Rodeo.

Problem A. Explain if BR is a variable interest entity or not. Support your answers using the facts above.

Problem B. Explain whether Bullworks or Rodeo must consolidate BR? Support your explanation with facts.

Reference no: EM132948963

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