Question

During 2004, elway corporation transferred inventory to howell corporation and agreed to repurchase the merchandise early in 2005. Howell then used the inventory as collateral to borrow from norwalk bank, remitting the proceeds to elway. In 2005 when elway repurchased the inventory, howell used the proceeds to repay its bank loan. This transaction is known as a(n).

Answer 1

The transaction described in this question is known as product financing arrangement.

What is a product financing arrangement?

Basically, a product financing arrangement refers to a business arrangement where a firm sells and agrees to repurchase inventory with the repurchase price equal to the original sale price including other carrying  costs.

Th product financing arrangement are accounted as a borrowing rather than a sale.

In conclusion, the transaction described in this question is known as product financing arrangement.

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