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

According to accounting standards, a product financing arrangement should be recognized as a liability if it meets two conditions. The first condition is that 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 (choice A). The second condition is that the payments made to the other entity cover all acquisition, holding, and financing costs (choice C). As both choices A and C are correct options, the best answer is D. Choice B is not relevant to determining whether a product financing arrangement should be recognized as a liability.

Financial Reporting Requires That Firms Recognize Product Financing Arrangements as Liabilities