Example: Cailor Corporation has a December 31^st year end. Cailor Corporation had a $1,000,000 life insurance policy for the corporation founder and CEO Randy Cailor. (Cailor Corporation is the beneficiary). Randy Cailor passed away unexpectedly in October, 2020 and Cailor Corporation received the $1,000,000 proceeds from this life insurance policy in December, 2020. The controller for Cailor Corporation is unsure of where to classify the insurance proceeds in the Statement of Cash Flows. The controller is unsure if the proceeds should be an operating, investing or financing activity.

Accounting Issue: Where should Cailor Corporation classify the life insurance proceeds in the December 31^st, 2020 Statement of Cash Flows. in other words should the proceeds be classified as an operating, investing or financing activity?

1. Codification Reference: ASC 230-10-45-21(c)

2. Guidance: (cut and paste the guidance)

Cash receipts resulting from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, shall be classified as cash inflows from investing activities.

3. Your answer/interpretation of the guidance for how it applies to Cailor Corporation (i.e. where should the life insurance proceeds be classified in the Statement of Cash Flows):

The proceeds from the insurance policy should be classified as an investing activity in the Statement of Cash Flows.

4. If required prepare a journal entry:

No journal entry is required.

1. Cailor Corporation is a privately held retail entity with a fiscal year ending December 31, 2020. Cailor is in the process of upgrading their e-commerce platform and the new system will be implemented on February 1, 2021. Cailor uses the FIFO method to measure Inventory and Cost of Goods Sold. For the year ending December 31, 2020 the recorded balance in the Inventory account was $325,000. Cailor determined that the net realizable value of the inventory is $275,000. However, the CEO of Cailor is not concerned because he believes that with the new e-commerce platform the company will be able to reduce its selling costs and correspondingly increase the Net Realizable Value above $325,000.

Accounting Issue: Is Cailor required to recognize the reduction in the inventory valuation for the year ending December 31, 2020 if they believe that the value will increase in the subsequent year?

1. Codification Reference:

2. Guidance: (cut and paste the guidance)

3. Your answer/interpretation of the guidance for how it applies to Cailor; should they recognize the reduction in Inventory for the year ending December 31, 2020?

4. If required, prepare the journal entry. If no journal entry is required indicate N/A.