Example:

Case: Mead Motors purchases an automobile for its new car inventory from Generous Motors, which finances this transaction through its financial subsidiary, Generous Motors Credit Company (GMCC). Mead pays no funds to Generous Motors or GMCC until it sells the automobile. Mead must then repay the balance of the loan plus interest to GMCC. How should Mead report the acquisition and repayment transactions in its Statement of Cash Flows?

Solution:

Problem Identification: How should a company report, if at all, cash and non-cash transactions owed to an entitys financial subsidiary?

Keywords: Cash flows; financ* subsidiaries; operating income.

Conclusion: Per ASC 230-10-50-5), Mead should exclude transactions that involve no cash payments or receipts. However, per 230-10-45-17, it should record cash payments to GMCC for repayments of principle (and interest thereon) due to suppliers or their subsidiaries as operating cash (out) flows.

PLEASE FOLLOW THE EXAMPLE FOR THE FOLLOWING CASE:

Tristan White, during the audit of Formas Company, has determined that the company will be preparing its financial statements on a liquidation basis of accounting due to the fact that management has decided to liquidate Formas Company at the end of the first quarter of next year. You have determined that this basis of accounting is not GAAP. As a result, Tristan seeks your assistance to determine if Tristan can issue an unmodified/unqualified audit report

Problem identification:

Keywords:

Conclusion: (please include the codes section)

Thanks in advance!