Financial reporting requires that firms recognize product financing arrangements as liabilities if which of the following conditions is met?
A) The arrangement requires the sponsoring firm to purchase the inventory,substantially
Identical inventory,or processed goods of which the inventory is a component at specified prices.
B) The selling or sponsoring firm physically controls the inventory.
C) The payments made to the other entity cover all acquisition,holding,and financing
Costs.
D) Both A and C are correct.

Question

Quizplus · Accepted Answer

Both conditions A and C must be met for product financing arrangements to be recognized as liabilities. Specifically, if the arrangement requires the firm to purchase inventory at specified prices and the payments made cover all acquisition, holding, and financing costs, then it must be recognized as a liability on the firm's financial statements. Control over the inventory or processing of goods is not a determining factor for recognition.

Financial Reporting Requires That Firms Recognize Product Financing Arrangements as Liabilities