What is a repurchase agreement (product financing) arrangement? How should a product repurchase agreement be reported in the financial statements?
In a repurchase agreement title is transferred to the buyer with the implicit or explicit contract to regain it. Thus inventories would not be shown in the financial statement until repurchased.
A repurchase agreement is a sales arrangement in which inventories are sold (transfer) with implicit or explicit agreement to purchase again.
A repurchase agreement is a kind of product financing as money is obtained without reporting any liability or inventory on the balance sheet.
In a product repurchase agreement, the title of the goods is technically transferred to the other party, but the seller retains the control by making a repurchase agreement.
So for transferring the title, the goods or inventory would not be shown in the seller's balance sheet, and the cash balance would increase. However, when the goods were repurchased, they would be added to the balance sheet, decreasing the cash balance.
Shawnee Corp., a household appliances dealer, purchases its inventories from various suppliers. Shawnee has consistently stated its inventories at FIFO cost.
Shawnee is considering alternate methods of accounting for the cash discounts it takes when paying its suppliers promptly.From a theoretical standpoint, discuss the acceptability of each of the following methods.
(a) Financial income when payments are made.
(b) Reduction of cost of goods sold for the period when payments are made.
(c) Direct reduction of the purchase cost.
Arna, Inc. uses the dollar-value LIFO method of computing its inventory. Data for the past 3 years follow.
Year Ended December 31 Inventory at Current-Year Cost Price Index
2016 $19,750 100
2017 22,140 108
2018 25,935 114
Compute the value of the 2017 and 2018 inventories using the dollar-value LIFO method.
Question: Fong Sai-Yuk Company sells one product. Presented below is information for January for Fong Sai-Yuk Company.
Jan. 1 Inventory 100 units at $5 each
4 Sale 80 units at $8 each
11 Purchase 150 units at $6 each
13 Sale 120 units at $8.75 each
20 Purchase 160 units at $7 each
27 Sale 100 units at $9 each
Fong Sai-Yuk uses the FIFO cost flow assumption. All purchases and sales are on account.
(a) Assume Fong Sai-Yuk uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 110 units.
(b) Compute gross profit using the periodic system.
(c) Assume Fong Sai-Yuk uses a perpetual system. Prepare all necessary journal entries.
(d) Compute gross profit using the perpetual system.
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