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. Gates Inc. has its reviewed interim financial information included with the audited financial statement. However, after the review the auditor believes that the interim financial information is not prepared in accordance with an applicable financial reporting framework. The review report which references the departure is not presented with the interim financial information that accompanies the audited financial statements. The engagement partner requests your assistance to research as to the impact on the report of the audited financial statements.