The following describes a set of arrangements between

TecPC Company #8113

The following describes a set of arrangements between TecPC Company and a variable interest
entity (VIE) as of December 31, 2017. TecPC agrees to design and construct a new research
and development (R&D) facility. The VIE's sole purpose is to finance and own the R&D facility
and lease it to TecPC Company after construction is completed. Payments under the operating
lease are expected to begin in the first quarter of 2019.

The VIE has financing commitments sufficient for the construction project from equity and debt
participants (investors) of $4 million and $42 million, respectively. TecPC, in its role as the VIE's
construction agent, is responsible for completing construction by December 31, 2018.

TecPC has guaranteed a portion of the VIE's obligations during the construction and post
construction periods.

TecPC agrees to lease the R&D facility for five years with multiple extension options. The lease
is a variable rate obligation indexed to a three-month market rate. As market interest rates
increase or decrease, the payments under this operating lease also increase or decrease,
sufficient to provide a return to the investors. If all extension options are exercised, the total
lease term is 35 years.

At the end of the first five-year lease term or any extension, TecPC may choose one of the
following:

? Renew the lease at fair value subject to investor approval.

? Purchase the facility at its original construction cost.

? Sell the facility on the VIE's behalf to an independent third party. If TecPC sells the project and
the proceeds from the sale are insufficient to repay the investors their original cost, TecPC may
be required to pay the VIE up to 85 percent of the project's cost.

a. What is the purpose of reporting consolidated statements for a company and the entities that
it controls?

b. When should a VIE's financial statements be consolidated with those of another company?

c. Identify the risks of ownership of the R&D facility that (1) TecPC has effectively shifted to the
VIE's owners and (2) remain with TecPC.

d. What characteristics of a primary beneficiary does TecPC possess?

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