Final answer:
If GM does not consolidate the leasing entity, the effect that does NOT occur is an increase in GM's assets because the assets remain off the lessee's balance sheet.
Step-by-step explanation:
The question deals with a scenario where General Motors (GM) uses a separate legal entity to acquire an asset, funded mostly by debt, and then leases it back with a guarantee on the residual value.
GM classifies the lease as an operating lease and chooses not to consolidate the entity on its balance sheet.
Among the listed effects, the one that would NOT occur if GM does not consolidate the entity is an increase in GM's assets.
When an entity is not consolidated, its assets are kept off the lessee’s (GM's) balance sheet. Hence, GM's assets would not reflect the leased building. However, the guarantee on the residual value may affect GM's liabilities due to potential future obligations.
Neither GM's equity nor its revenue would directly increase due to the operating lease structure.
If GM does not consolidate the entity, the effect that does NOT occur is an increase in GM's revenue.
When GM guarantees the residual value of the building and reports the lease as an operating lease, it means that the entity is responsible for the debt and the building. However, GM does not consolidate the entity, which means it does not include the entity's financials in its own financial statement.
As a result, the revenue generated by the entity from leasing the building does not get recognized as GM's revenue.
The other three options - increase in GM's assets, increase in GM's liabilities, and increase in GM's equity - are all possible effects of the transaction.