Use the following information for questions 35 and 36.
During 2014 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2015. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2015 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, 2014 balance sheet date?
A) Carne Corporation
B) Nolan Corporation
C) Norwalk Bank
D) Nolan Corporation, with Carne making appropriate note disclosure of the transaction

Question

Quizplus · Accepted Answer

This transaction is essentially a financing arrangement, as Carne Corporation has both the intent and obligation to repurchase the inventory. Therefore, the inventory should still be recorded on Carne Corporation's balance sheet, as they effectively retain control over the inventory despite the temporary transfer.

Use the Following Information for Questions 35 and 36