Accounting Theory - Variable Interest Entity
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LARUE
Larue, Inc. purchases the bulk its inventory from Stag Corporation. One officer of Larue presently serves on the Board of Directors of Stag. It has been necessary for Stag to borrow a lot of money over the past five years and Larue is concerned about Stag's ability to survive as a going concern. Larue has assumed all of Stag's debt in return for placing two more officers on the Board of Directors of Stag. If Stag is profitable over the next three years, then Larue will buy the equity shares of Stag making Stag a subsidiary of Larue.
REQUIRED: Is Stag a Variable Interest Entity of Larue? Why? Include accredited sources such as the ASC, SFAS, etc...
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Solution Summary
This solution helps with a problem regarding accounting theory. It explains equity theory.
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VARIABLE INTEREST ENTITY
Currently, the only role played by Stag Corporation to LARUE is as a major supplier of inventory of raw materials. Larue has been very much concerned of the financial performance of Stag Corporation because such may affect its ability to survive as a going concern. Consequently, this will affect the ability of Stag Corporation to supply LARUE with the most needed inventory of raw materials.
To save the company and at the same time ensure for itself supply of raw materials, LARUE assumed all Stag's debt in return for placing two or more officers on the Board of Directors of Stag.
Although LARUE has the intention to buy the equity shares of ...
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- Bachelor of Science in Business Administration, University of the Philippines
- Master in Business Administration, Saint Mary's University
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- Doctor in Business Adminstration (IP), Polytechnic University of the Philippines
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