The Company entered into the following two separate transactions in fiscal year 2015, which will impact its results as presented in the statement of cash flows, which Formula Corp. prepares under the indirect method.

1. To meet its need for additional EAs in fiscal years 2015 to 2019, on April 2, 2015 Formula Corp. spent $3 million to purchase EAs with a vintage year of 2017 from Earth Friendly Products (a ?green products? manufacturer).
2. In an effort to off set the costs of the April2, 2015 purchase of 2017 EAs ,theCompany sold EAs with a vintage year of 2021 to Clorox Corp. for $2 million.

and explain why

PROJECT #2 Formula Corp. - The Shift to Green Manufacturing Background: Formula Corp. (the \"Company\"), an SEC registrant, operates three manufacturing facilities in the United States (and many more in Europe). The Company manufactures various household cleaning products at each facility, offering products both to retail customers and private label manufacturing for other retailers. The U.S. government granted Formula Corp. emission allowances (\"EAs\") of varying vintage years (i.e., the years in which the allowance may be used) to be used between 2015 and 2035. Upon receipt of the EAs, the Company recorded the EAs as intangible assets with a cost basis of zero, in accordance with the Federal Energy Regulatory Commission (\"FERC\") accounting guidance for EAs. Formula Corp. has a fiscal year end of December 31st. As background, in an effort to control or reduce the emission of pollutants and greenhouse gases, governing bodies typically issue rights or EAs to entities to emit a specified level of pollutants. Each individual EA has a vintage year designation. EAs with the same vintage year designation are fungible and can be used by any party to satisfy pollution control obligations. Entities can choose to buy EAs from, and sell EAs to, other entities. Such transactions are typically initiated through a broker. At the end of a compliance period, participating entities are required to either Deliver to the governing bodies EAs sufficient to offset the entity's actual emissions or Pay a fine. Formula Corp. currently emits a significant amount of greenhouse gases because of its antiquated manufacturing facilities. The Company plans to upgrade its facilities in 2019, which will decrease greenhouse gas emissions to a very low level. On the basis of the timing of the upgrade, the Company currently anticipates a need for additional EAs in fiscal years 2015 to 2019. However, upon completion of the upgrade, Formula Corp. believes it will have excess EAs in fiscal years subsequent to 2019 because of reduced emissions as a result of the upgrade. Formula Corp. currently has forecasted the updates to its facilities will cost approximately $15 million. As the Company operates in a capital intensive industry, analysts and investors focus on a number of important ratios and measures, including working capital, capital expenditures, cash flows from operations, and free cash flow. As a result, the board of directors and management provide forward-looking guidance on these ratios and measures and expend great effort managing these results in light of the Company's operational needs. The Company entered into the following two separate transactions in fiscal year 2015, which will impact its results as presented in the statement of cash flows, which Formula Corp. prepares under the indirect method. 1. To meet its need for additional EAs in fiscal years 2015 to 2019, on April 2, 2015 Formula Corp. spent $3 million to purchase EAs with a vintage year of 2017 from Earth Friendly Products (a \"green products\" manufacturer). 2. In an effort to offset the costs of the April 2, 2015 purchase of 2017 EAs, the Company sold EAs with a vintage year of 2021 to Clorox Corp. for $2 million. ACTG 381, Fall 2015 Page 1 Required: Using the textbook, the FASB Accounting Standards Codification (see the syllabus for access information) and other professional literature, answer the following questions. In your responses you must cite the applicable codification or other authoritative references to support your answer. 1. What is the appropriate classification in the statement of cash flows in the Company's December 31, 2015, financial statements for its purchase of 2017 EAs from Earth Friendly Products? 2. What is the appropriate classification in the statement of cash flows in the Company's December 31, 2015, financial statements for its sale of 2021 EAs to Clorox Corp.? 3. If the Company reported its results pursuant to IFRSs rather than U.S. GAAP, how would the Company record the purchase and sale of its EAs differently? Format: One memo should be turned in by each team. The format of the memo should be as follows: Each team member's name should be included in the \"from\" line of the memo. The memo should be double spaced, well-reasoned and grammatically correct. The first sentence of the memo should say, \"The purpose of this memo is to address the accounting issues related to how Formula Corp. should classify the purchase and sale activity...\" When citing authoritative literature, you should say \"According to FASB ASC Topic(s) xxx ...\" and so on. Peer Evaluation: Teamwork is an important aspect of professionalism. You will evaluate your team members using the attached peer evaluation based on your work experience with them. Your own peer evaluation score is based upon the average of the scores given to you by your peers. Each person should turn in their peer evaluation on a separate piece of paper (folded in half for confidentiality and paper-clipped to the memo). If you do not turn in an evaluation of your peers, your peer evaluation score will be zero. Due Date: The memo and peer evaluations must be turned in (in class) Tuesday, December 1, 2015 at the beginning of class. ACTG 381, Fall 2015 Page 2 Peer Work Team Evaluation Forms Directions: In the space below, honestly evaluate the work of the other students in your team by providing your responses to the following questions. Evaluator's Name: _______________________________________ Date: _____________ Taking into account the following questions, please assign a score of 1 to 10 for each team member (other than yourself) with 1 being the lowest score and 10 being the highest score. Did this team member complete assigned tasks on time? How would you rate the quality of this person's work? How would you rate the accuracy of this person's work? Team Member 1 Name:___________________________ Score:______ Team Member 2 Name:___________________________ Score:______ Team Member 3 Name:___________________________ Score:______ ACTG 381, Fall 2015 Page 3