Hillsborough Country Outfitters, Inc., entered into an agreement for HCO Media LLC to exclusively conduct Hillsborough's e-commerce initiatives through a jointly owned (50 percent each) Internet site known as HCO.com. HCO media receives 2 percent of all sales revenue generated through the site up to a maximum of 500,000 per year. Both Hillsborough and HCO Media pay 50 percent of the cost to maintain the interest site. However, if HCO media's fees are insufficient to cover its 50 percent share of the costs, Hillsborough absorbs the loss.
Assuming that HCO Media qualifies as a VIE, should Hillsborough Consolidate HCO Media LLC?
As stated in the problem, HCO Media qualifies as a variable interest entity (VIE). The VIE must be consolidated if the answer to any of the following questions is 'true':
1) The VIE does not have a significant equity stake at risk.....TRUE, although HCO Media would have some equity exposure in the above arrangement, HCO, Inc. is said to absorb any losses ...
The expert examines HCO Media qualified VIE.