Only do the Product Financing case

First analyze / discuss at least 3 issues and then give your conclusion to either include this financing arrangement as part of your liability risk analysis or ignore it.

Please help me answer this! Give correct answer with detail process kudos!

tax rate to the att ta rate the statutory rate when compared to the average Tax TRE- Be that cach of the reconciling em cher NOTE: Se cercises 2.6 and 27 in Chapter 2 for additional questions or income taxes Problems and Cases Materials by R. Dieter, D. Landsittel, J. Stewart, and A. Wyatt). Patrick 8.10 ACHIEVING OFF-BALANCE-SHEET FINANCING (Adapted from company wishes to raise $50 million cash but, for various reasons, does not wish to do profitable that its bank is willing to lend up to $50 million at the prime interest rate. O in a way that results in a newly recorded liability. The firm is sufficiently solvent and Patrick Company's financial executives have devised six different plans, described in the Transfer of Receivables with Recourse Patrick Company will transfer to Credit Company its long-term accounts receivable, which call for payments over the next two years. Credit Company will pay an amount equal to the because it is paying now but will collect cash later. Patrick Company must repurchase from Credit Company at face value any receivables that become uncollectible in excess of the allowance. In addition, Patrick Company may repurchase any of the receivables not yet due following sections. value of the receivables, less an allowance for uncollectibles, as well as a discount, present tory years at a face value less a discount specified by formula and based on the prime rate at the time of the initial transfer. (This option permits Patrick Company to benefit if an unexpected drop in interest rates occurs after the transfer.) The accounting issue is whether the transfer is a sale (in which Patrick Company increases Cash, reduces Accounts Receivable, and recog- nizes expense or loss on transfer) or merely a loan collateralized by the receivables (in which Patrick Company increases Cash and increases Notes Payable at the time of transfer). Product Financing Arrangement Patrick Company will transfer inventory to Credit Company, which will store the inven- in a public warehouse. Credit Company may use the inventory as collateral for its own borrowings, whose proceeds will be used to pay Patrick Company. Patrick Company will pay storage costs and will repurchase all of the inventory within the next four contractually fixed prices plus interest accrued for the time elapsed between the transfer and later repurchase. The accounting issue is whether the inventory is sold to Credit Com- pany, with later repurchases treated as new acquisitions for Patrick's inventory, or whether the transaction is merely a loan, with the inventory remaining on Patrick's balance sheet. Throughput Contract Patrick Company wants a branch line of a railroad built from the main rail line to carry raw material directly to its own plant. It could, of course, borrow the funds and build the branch line itself. Instead, it will sign an agreement with the railroad to ship specified amounts of material each month for ten years. Even if it does not ship the specified amounts of material, it will pay the agreed shipping costs. The railroad will take the con- tract to its bank and, using it as collateral, borrow the funds to build the branch line. The accounting issue is whether Patrick Company would increase an asset for future rail ser- vices and increase a liability for payments to the railroad. The alternative is to make no accounting entry except when Patrick makes payments to the railroad. Construction Partnership cals both need in their own production processes. Each will contribute $5 million to the Patrick Company and Mission Company will jointly build a plant to manufacture chemi. project, called Chemical. Chemical will borrow another $40 million from a bank, with to future operating expenses and debt service payments of Chemical, but, in return for its Patrick the only guarantor of the debt. Patrick and Mission are each to contribute equally guaranteeing the debt, Patrick will have an option to purchase Mission's interest for $20 million four years hence. The accounting issue is whether Patrick Company should rec- ognize a liability for the funds borrowed by Chemical. Because of the debt guarantee, debt service payments will ultimately be Patrick Company's responsibility. Alternatively, the debt guarantee is a commitment merely to be disclosed in notes to Patrick Company financial statements. Research and Development Partnership Patrick Company will contribute a laboratory and preliminary findings about a potentially profitable gene-splicing discovery to a partnership, called Venture. Venture will raise funds by selling the remaining interest in the partnership to outside investors for $2 million and borrowing $48 million from a bank, with Patrick Company guaranteeing the debt. Although Venture will operate under the management of Patrick Company, it will be free to sell the results of its further discoveries and development efforts to anyone, including Patrick Company, Patrick Company is not obligated to purchase any of Venture's output. The accounting issue is whether Patrick Company would recognize the liability. Hotel Financing Patrick Company owns and operates a profitable hotel. It could use the hotel as collat- eral for a conventional mortgage loan. Instead, it considers selling the hotel to a partner- ship for $50 million cash. The partnership will sell ownership interests to outside investors for $5 million and borrow $45 million from a bank on a conventional mort- gage loan, using the hotel as collateral. Patrick Company guarantees the debt. The accounting issue is whether Patrick Company would record the liability for the guaran- teed debt of the partnership