Joint Venture Investment
Dell Computer Corp. and CIT Group, Inc., established Dell Financial Services L.P. (DFS) as a joint venture to provide financing services for Dell customers. Dell originally purchased 70 percent of the equity of DFS and CIT purchased 30 percent. In the initial agreement, losses were allocated entirely to CIT, although CIT would recoup any losses before any future income was allocated. At the time the joint venture was formed, both Dell and CIT indicated that they had no plans to consolidate DFS.
Required
a. How could both Dell and CIT avoid consolidating DFS?
b. Does Dell currently employ off-balance sheet financing? Explain.
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