Intermediate Accounting Research Case 2 Solution for Finance Students

This assignment is a formal research memo analyzing a product financing arrangement within the context of intermediate accounting principles. The case involves Birch Industries seeking financing through a repurchase agreement with Grime Corporation, triggering the need to apply relevant FASB Accounting Standards Codification (ASC) guidance. The memo addresses the accounting treatment of the transaction, specifically focusing on ASC 606-10-32-2, 606-10-32-4, 606-10-55-75, 606-10-55-78, and 606-10-55-321. The analysis determines whether the arrangement should be accounted for as a sale or a financing transaction, considering the repurchase price, the time value of money, and the substance of the agreement. The memo concludes that the proposed plan aligns with the appropriate accounting standards, supporting the CFO's strategy to meet the company's financial needs and improve its pre-tax profit.

Running head: INTERMEDIATE ACCOUNTING
Intermediate Accounting
Name of the student
Name of the university
Author Note

1INTERMEDIATE ACCOUNTING
To: Susie
From: Assistant CFO
Date:
Subject: Research case 2
Facts
The Birch industry has borrowed the highest amount available from the bank. This has been done
by the firm in order to provide financial help for the purchase of inventory under a short term
line of credit. The strategy of a monetary arrangement of a particular product has been described
to the Assistant CFO over a lunch. This strategy would allow the Birch industry to acquire the
required cash for purchasing the added supplies of the goods. The boss believes that this a
supreme way in the formation of a transaction to meet the monetary needs of the Birch industry.
The boss Susie made a plan to sale the goods from the inventory of $200,000 at $300,000 to
Grime Corporation. The boss has explained the propose plan in detail that Grime Corporation
will pay the entire amount to Birch industry immediately. The birch industry in the next two
months will agree to repurchase the goods. The amount they are willing to pay is $300,000 in
addition of 8%APR and a $5000 fee for the storing the inventory. The CFO of the Grime
Corporation has accepted the offer. There is an additional benefit of the plan that the second
quarter pre-tax profit of the organization will increase by the amount of $95000 and the gross
profit on the sale less the $5000 as a storage fee. The FASB accounting standards is the origin of
reliable generally accepted accounting principles known as GAAP and this is identified by the
FASB for to be applied in the non-government organization (Murphy & O’Connell 2013). The
codification research system is a website an is an advanced application that permit the firms to

2INTERMEDIATE ACCOUNTING
view the required content of codification, perform analysis of the content and submit the
feedback.
Issues
The issue that have been identified are
To research the problem of the company
To research and examine that the following reporting standard will be appropriate.
Conclusion
This can be concluded according to the identified reporting standard that the plan proposed by
the boss Susie is following the appropriate accounting standard.
Reasoning and support
The following section of the FASB ASC provides the appropriate reporting standard for the
identified issue.
606-10-32-2, A firm shall consider the terms of the contract and the traditional practices of
business in deciding the transaction price. The amount of transaction is the particular amount of
consideration to which a firm expects to be qualified in the exchange for transferring the
particular goods and services to particular consumer (Asc.fasb.org. 2019).
606-10-32-4. to determine the amount of transaction a firm shall assume that the goods and
service will be transferred to the customer in agreement with the existing contract and the
contract will not be modified.

3INTERMEDIATE ACCOUNTING
606-10-55-75 However, if the repurchase amount of the inventory is equal or higher than the
original sales price and is also more than the expected market value of the inventory. The
contrast is at a consequence of a financing arrangement. This should be accounted in the report.
606-10-55-78 however while comparing the amount of repurchase with the selling price, a firm
should examine the time of value.
606-10-55-321 The firm and the consumer negotiate the selling price and the entity account the
consumer for a payment within 30 days for the agreed price.

4INTERMEDIATE ACCOUNTING
References
Asc.fasb.org. 2019. FASB Accounting Standards Codification®. Retrieved 4 October 2019, from
https://asc.fasb.org/about
Murphy, T., & O’Connell, V. 2013. Discourses surrounding the evolution of the IASB/FASB
Conceptual Framework: What they reveal about the “living law” of
accounting. Accounting, Organizations and Society, 38(1), 72-91.