Lennor Company sold inventory to Myers Incorporated and recorded the sale as revenue.Part of the agreement of the sale is that Lennor will repurchase the merchandise at a specified price over a specified period of time.Meanwhile,Myers uses the inventory purchased from Lennor as collateral for a loan.Myers uses the proceeds from the loan to pay Lennor for the inventory purchased.Lennor ultimately repurchases the inventory from Myers.Myers then uses the proceeds of the repayment to pay its loan obligation.
Required:
1.Explain the rationale for the two companies engaging in this series of transactions.
2.Explain how the sale of the inventory would be reported on the records of Lennor Company.

Question

Quizplus · Accepted Answer

The Answer of Lennor Company sold inventory to Myers Incorporated and recorded the sale as revenue.Part of the agreement of the sale is that Lennor will repurchase the merchandise at a specified price over a specified period of time.Meanwhile,Myers uses the inventory purchased from Lennor as collateral for a loan.Myers uses the proceeds from the loan to pay Lennor for the inventory purchased.Lennor ultimately repurchases the inventory from Myers.Myers then uses the proceeds of the repayment to pay its loan obligation.
Required:
1.Explain the rationale for the two companies engaging in this series of transactions.
2.Explain how the sale of the inventory would be reported on the records of Lennor Company.

Lennor Company Sold Inventory to Myers Incorporated and Recorded the Sale