Accounting

The research assignment is based on FASB codification online system. You need to locate and extract relevant information and authoritative support for a given financial reporting issue:product financing arrangement. Please read the case study and instructions carefully and address all the parts of the assignment. Points will be given for [1] how well you address the requirements and [2] for the quality of discussion and quality of writing.
Scenario
You were recently hired to work in the controller’s office of the Balboa Lumber Company. Your boss, Alfred Eagleton, took you to lunch during your first week and the following discussion took place. “Things have been a little bit slow lately, and we need to borrow a little cash to tide us over. Our inventory had been building up and the CFO wants to pledge the inventory as collateral for a short-term loan. But I have a better idea.” Mr. Eagleton went on to describe his plan. “On July 1, 2013, the first day of company’s third quarter, we will sell $100,000 of inventory to the Harbaugh Corporation for $160,000. Harbaugh will pay us immediately and then we will agree to repurchase the merchandise in two months for $164,000. The $4,000 is Harbaugh’s fee for holding the inventory and for providing financing. I already checked with Harbaugh’s controller and he has agreed to the arrangement. Not only will we obtain the financing we need, but the third quarter’s before-tax profits will be increased by $56,000, the gross profit on the sale less the $4,000 fee. Please go research the issue and make sure we would not be violating any specific accounting standards related to product financing arrangements.”
Requirements:
1. Obtain the relevant authoritative literature on product financing arrangements using the FASB’s Codification Research System. What is the specific citation that you found in the system that provides guidance for determining whether an arrangement involving the sale of inventory in the above case is “in substance” a financing arrangement?In one paragraph, briefly summarize the guidance under the citation (3 points)
2. What is the specific citation that addresses the recognition of a product financing arrangement?In one paragraph, briefly summarize the guidance under the citation (3 points)
3. Discuss the ethical implications of your boss’ suggestion: be specific in this part. As an example, you may discuss what provisions of the Framework will be violated and why, or you can touch on any other aspects of the investors’ decision-making process. (5 points)
4. Determine and describe, based on the guidance you found in the FASB research system, the appropriate accounting treatment of product financing arrangements like the one proposed by Mr. Eagleton. Prepare the journal entry for Balboa Lumber to record the “sale” of the inventory and subsequent repurchase, based on the guidance provided in the FASB research system.(4 points)
5. What are other options available to a company to raise needed cash? What are the main advantages/disadvantages of those options, compared to the product financing arrangement? (5 points)
Instructions:
Go to http://aaahq.org/ascLogin.cfm to access the FASB Codification.Use the website to answer the above requirements.
You should answer the questions in a 1, 2, 3, 4 format. Responses should be in a form of a memo and should be maximum of three pages double spaced (in total).

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