Using FASB codification answer the problem correctly. See the following example to get an idea how to analyze the case study.

James Olds buys a four-year, $1,000,000 certificate of deposit from the Second National Bank.James will receive 5% interest in year 1; 5.5% in year 2; 6% in year three; and 6.5% interest in year 4.If James "redeems" this certificate before the maturity date, he would receive a cumulative 4.5% annual rate of interest of 4.5%.The Bank has ascertained that less than one percent of its depositors redeem their certificates before the maturity date.The bank asks its accountant how to accrue and measure such interest payment obligations.

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Please answer like this example below:

Case: Mead Motors purchases an automobile for its new car inventory from Generous Motors, which finances this transaction through its financial subsidiary, Generous Motors Credit Company (GMCC). Mead pays no funds to Generous Motors or GMCC until it sells the automobile. Mead must then repay the balance of the loan plus interest to GMCC. How should Mead report the acquisition and repayment transactions in its Statement of Cash Flows?

Solution:

Problem Identification : How should a company report, if at all, cash and non-cash transactions owed to an entity's financial subsidiary?

Keywords : Cash flows; financ* subsidiaries; operating income.

Conclusion : Per ASC 230-10-50-5), Mead should exclude transactions that involve no cash payments or receipts. However, per 230-10-45-17, it should record cash payments to GMCC for repayments of principle (and interest thereon) due to suppliers or their subsidiaries as operating cash (out) flows.

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