You were recently hired to work in the controller's office of the Balboa Lumber Company. Your boss, Alfred Eagleton, took you to lunch during your first week and asked a favor. "Things have been a little slow lately, and we need to borrow a little cash to tide us over. Our inventory has been building up and the CFO wants to pledge the inventory as collateral for a short-term loan. But I have a better idea." Mr. Eagleton went on to describe his plan. "On July 1, 2021, the first day of the company's third quarter, we will sell $100,000 of inventory to the Harbaugh Corporation for $160,000. Harbaugh will pay us immediately and then we will agree to repurchase the merchandise in two months for $164,000. The $4,000 is Harbaugh's fee for holding the inventory and for providing financing. I already checked with Harbaugh's controller and he has agreed to the arrangement. Not only will we obtain the financing we need, but the third quarter's before-tax profits will be increased by $56,000, the gross profit on the sale less the $4,000 fee. Go research the issue and make sure we would not be violating any specific accounting standards related to product financing arrangements." Required: 1. Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Determine the specific eight-digit Codification citation (XXX-XX-XX-X) that provides guidance for determining whether an arrangement involving the sale of inventory is "in substance" a financing arrangement? 2. Determine the specific eight-digit Codification citation (XXX-XX-XX-X) that addresses the recognition of a product financing arrangement? 3. What is the appropriate treatment of product financing arrangements like the one proposed by Mr. Eagleton? multiple choice Record sales revenue at the time the proceeds are received. Record a liability at the time the proceeds are received. Remove inventory from the accounting records at the time the proceeds are received. All of the answers above are correct.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
You were recently hired to work in the controller's office of the Balboa Lumber Company. Your boss, Alfred Eagleton, took you to lunch during your first week and asked a favor. "Things have been a little slow lately, and we need to borrow a little cash to tide us over. Our inventory has been building up and the CFO wants to pledge the inventory as collateral for a short-term loan. But I have a better idea." Mr. Eagleton went on to describe his plan. "On July 1, 2021, the first day of the company's third quarter, we will sell $100,000 of inventory to the Harbaugh Corporation for $160,000. Harbaugh will pay us immediately and then we will agree to repurchase the merchandise in two months for $164,000. The $4,000 is Harbaugh's fee for holding the inventory and for providing financing. I already checked with Harbaugh's controller and he has agreed to the arrangement. Not only will we obtain the financing we need, but the third quarter's before-tax profits will be increased by $56,000, the gross profit on the sale less the $4,000 fee. Go research the issue and make sure we would not be violating any specific accounting standards related to product financing arrangements."
Required:
1. Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Determine the specific eight-digit Codification citation (XXX-XX-XX-X) that provides guidance for determining whether an arrangement involving the sale of inventory is "in substance" a financing arrangement?
2. Determine the specific eight-digit Codification citation (XXX-XX-XX-X) that addresses the recognition of a product financing arrangement?
3. What is the appropriate treatment of product financing arrangements like the one proposed by Mr. Eagleton?
multiple choice
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Record sales revenue at the time the proceeds are received.
-
Record a liability at the time the proceeds are received.
-
Remove inventory from the accounting records at the time the proceeds are received.
-
All of the answers above are correct.
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