Question

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 Corporationb. Nolan Corporationc. Norwalk Bankd. Nolan Corporation, with Carne making appropriate note disclosure of the transaction

Answer 1

The correct answer is letter "A": Carne Corporation.

Step-by-step explanation:

Even if the inventory was transferred to Nolan Corporation there was an agreement on repurchasing it in the upcoming year. Besides, when Nolan Corporation made a product financing arrangement with Norwalk Bank, Nolan had to remit the proceeds to Carne Corporation since the inventory actually was considered part of its activities. In that sense in Carne Corporation's balance sheet must appear the cost of the inventory.