Using FASB codification answer the problem correctly. See the following example to get an idea how to analyze the case study.

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.

1) Lowland Appliance Stores offers customers purchasing its appliances separately priced (extended) warranties. Lowland services these extended warranties. Its customers can receive no refunds for not using these warranties, and, of course, Lowland must honor these contractsregardless of any future costs in doing so. It also tracks the profits and losses these types of warranties generate by appliance categoryin order to help maintain a competitive price and costing structures. How should Lowland recognize the revenues and expenses of such extended warranties?

(2) Narda Corporation agreed to sell all of its capital stock to Effie Corporation for three monthly payments of $200,000. After Effie made the first required payment, it ceased making other payments. The stock subscription agreement states that Effie, thus, forfeits its payments and is entitled to no other future consideration. How should Narda record the $200,000 forfeited payment?