Question

During 2020 Came Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2021. Nolan then used the inventory as collateral to borrow from Norwalk Bank remitting the proceeds to Carne. In 2021 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan. On whose books should the cost of the inventory appear at the December 31, 2020 balance sheet date?
A) Came Corporation
B) Nolan Corporation
C) Norwalk Bank
D) Nolan Corporation, with Came making appropriate note disclosure of the transaction

Answer 1

Answer:

A) Came Corporation

Explanation:

This type of transaction is called a product financing arrangement by which one company (Came Corporation) facilitates inventory to another company for the purpose of the second company using it as collateral for a bank loan. Came should include the inventory cost in its balance sheet since it gave it Nolan but promised to repurchase it back.