Before filing for bankruptcy protection, the company was able to buy a large shipment of snow tubes wholesale for a bargain price of $7 million from a supplier that was in financial trouble. The value of the inventory is approximately $10 million. The inventory was sitting in the UMC manufacturing facility taking up a lot of space. Because the manufacturing facility was being renovated, UMC reached an agreement with its leading competitor, MMN. According to the contract, MMN agreed to purchase the snow rubes from UMC for SB million and UMC shipped the inventory on December 31 to arrive on January 5. The inventory was shipped f.o.b. shipping point. UMC normally reimburses its customers if the inventory is dan1aged in transit. UMC has a tentative verbal agreement that it will repurchase the snow rubes that MMN does not sell by the time the renovations are complete (in approximately six months). The buyback price will include an additional amount that will cover storage and insurance costs.
Instructions
Adopt the role of Mia Romano-the company controller- and discuss the financial reporting issues related to the preparation of the financial statements for the year ended December 31, 2013.