CASE 09-3: Venturing into Consolidation

Provided Case 09-3, we, Group 7 have dutifully researched the topic, using resources at our disposal to formulate a consistent, clear and legal response. The following submission outlines the case, our conclusions with supporting evidence and the accounting issues present in the subject.
FACTS:
Case 09-3: Venturing into Consolidation details the ongoings and pertinent information of the joint venture of DeviceCo, and Pharmador branded LeaseMed. The joint venture LeaseMed has been created to operate as a medical equipment leasing entity. The joint venture is overseen by a board of directors composed of six members with three representatives from both parent companies. The joint venture was formed provided $1 million from the parent companies divided as $550,000 from DeviceCo and $450,000 from Pharmador. Ownership and profits/losses are divided per contribution (55:45). Neither company has any involvement with LeaseMed outside of their ownership. All companies relevant to the case have December 31 year-ends.
Other relevant facts:
• Risk related to LeaseMed’s operations is designed to pass to equity holders per their ownership interest.
• Both parent companies have determined that substantially all of the activities of the joint venture do not involve or are not conducted on behalf of either company.
• All of LeaseMed’s equity meets the definition of “equity at risk”.
• LeaseMed has not been able to issue investment grade debt.
• LeaseMed’s expected losses exceed $1,000,000.
The information above was provided to afford any germane party the substantiation on which our conclusions were made. The remainder of this text will outline the issues of the given case, our responses and the evidence to support our suppositions.

Issue I:
Can either venturer qualify for the business scope exception, which