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Chapter 16 - Solution Manual

Eitf d 097 paragraph sequence 34 in the context of

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Investors A and B provide Investor C certain limited first-loss guarantees of its investment. [EITF D-097, paragraph , sequence 34] ] [In the context of this example, the SEC staff concluded that Investors A, B, and C did not overcome the presumption that they were members of a collaborative group of investors. Furthermore, since the collaborative group of Investors acquired 100 percent of the outstanding common stock of Company D, the SEC staff concluded that push-down accounting was required to be applied in Company D's financial statements. The factors the SEC staff considered in reaching its conclusion that the presumption was not rebutted included, among others, the following: [EITF D-097, paragraph , sequence 35] ] [Investors A, B, and C acted in concert to negotiate their concurrent investments in Company D, which were made pursuant to the same contract. [EITF D-097, paragraph , sequence 36] ] [The investments by Investors A, B, and C were being made in connection with a broader strategic initiative the three investors were pursuing together. [EITF D-097, paragraph , sequence 37] ] [There were a number of prior business relationships between the Investors that were material to the Investors. [EITF D-097, paragraph , sequence 38] ] [Investor C does not share fully in the risks and rewards of ownership due to the limited first-loss guarantees provided by Investors A and B. [EITF D-097, paragraph , sequence 39] ] [No single Investor controlled the board of directors, and due to the amendments to the bylaws regarding board representation and voting, any of the three Investors could unilaterally block any board action. In other words, Investors A, B, and C were compelled to collaborate on the subsequent control of Company D. [EITF D-097, paragraph , sequence 40] ] [There are restrictions on each Investor's ability to transfer its shares. [EITF D-097, paragraph , sequence 41] ] [The guidance in this announcement should be applied prospectively to transactions initiated after April 19, 2001. [EITF D-097, paragraph , sequence 42] [FN2 Topic No. D-97 Footnote 2—Preexisting, or rollover, investors should be evaluated for inclusion in the collaborative group on the same basis as new investors. [EITF D-097, paragraph , sequence 9] ] [FN3 Topic No. D-97 Footnote 3—In an assessment of whether the presumption is overcome, any single factor should not be considered in isolation. [EITF D-097, paragraph , sequence 10] ] [I. Independence [EITF D-097, paragraph , sequence 11] ] [The investor is substantive. For example, the investor is an entity with substantial capital (that is, comparable to that expected for a substantive business with similar risks and rewards) and other operations. In contrast, an investor that is a special-purpose entity whose only substantive assets or operations are its investment in the investee generally would not be considered substantive. [EITF D-097, paragraph , sequence 12] ]
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353 FASB ASC 16-3 Definition of Business Search business combinations and definition of a business 805-10-55-4 A business consists of inputs and processes applied to those inputs that have the ability to create outputs.
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