Case 9-6

Case 9-6

This paper intends to explore the given case that revolves around the company called Upbeat, Inc. Further, the main focus is to answer the questions regarding the sale accounting. However, the company is facing financial turmoil. It is having tight liquidity as a result of low debt to equity ratio. This has created a problem under Upbeat's debt covenant. To bringing things under control the local bank advisor of Upbeat made a suggestion that the company must sell its accounts receivable to increase liquidity in order to run the operations smoothly. However, GAAP usually required a true sales suggestion, for which Tommy got hold of his attorney for legal opinion. Thus, Upbeat implemented on the bank's suggestion and sold a part of its accounts receivable.

Laws that are Relevant

The applicable law of accounting standard is ASC 860. It is implemented on the financial assets that are transferred. The accounting of transferred financial assets deals with the situation where the individual who has transferred the asset, has no continued participation in making decisions regarding financial asset. However, the problem may arise in such scenarios where the person who transfers may continue with his involvement with the financial asset that is being transferred or with the transferor. Thus, this accounting standard ASC 860 deals with the scenarios as mentioned above. Accounting for transfers of financial assets is updated in the FASB statement no, 166.

Analysis

Aggregate sales data, classification, and provide a valuable reference data for sales decision-making and provide the basis for the sales price and the formulation of a strategy. Cost accounting is calculated from the sales perspective, the cost is divided into production costs and cost of sales. Sales accounting is to calculate the cost of sales that can be worked out through the assessment methods and incentives for sales staff. Such separate accounts can clear analysis of the reasons that affect corporate profits. The check on the accounts receivable often leads to control the operations, but it cannot keep abreast of customer credibility. However, accounting for the sales through the understanding of the customers in times of financial crisis with money may reduce the incidence of bad debts (Alan, 2003).

Sale accounting is said to be implemented when any one entity makes a sale of an asset to other and then it has no longer any involvement or control over the asset or buyer. If the seller has a control on the asset then it is termed as a secured borrowing and not sale. Consequently, then sale accounting shall not be the case. ASC 860 is the one that may decide if the transfer of an asset would be termed as sale or secured borrowing. Sale accounting is suitable where the evidence is found of assurance that asset shall be isolated from the transferor. Thus, in case of bankruptcy of the transferor, the asset shall remain isolated from any harm of bankruptcy.

The buyer possesses the right to exchange or pledge only if it is an organization that holds ...