insurance carrier, the company
Background
Issue #1 The company reached a settlement with its insurance carrier related to a claim from a tornado that destroyed one of the company’s manufacturing facilities. During the year, the company received proceeds of $20 million from its insurance carrier in connection with its claim for reimbursement for the destroyed building. The company plans to use the insurance proceeds to fund its defined-benefit pension plan, rather than to rebuild the destroyed facility. How is this transaction treated in the cash flow statement? In addition, is there a timing issue?
Analysis #1 By reaching a settlement with its insurance carrier, the company
Conclusion #1 The company has sold its accounts receivable to a nonconsolidated multi-seller securitization vehicle. In return, the company received cash and beneficial interest to reduce its own bank debt. During the year, $11 million of receivables were sold. How is this transaction treated in the cash flow statement? In addition, is there a timing issue?
Issue #2 The company has sold its accounts receivable to a nonconsolidated multi-seller securitization vehicle. In return, the company received cash and beneficial interest to reduce its own bank debt. During the year, $11 million of receivables were sold. How is this transaction treated in the cash flow statement? In addition, is there a timing issue?
Analysis #2 By selling its accounts receivable in exchange for cash and beneficial interest, the company is able to reduce its own bank debt. These sets of transactions are classified as a financing activity (FASB ASC 230-10-20). Based on the case facts, this transaction qualified for derecognition, which is the removal of assets from the statement of financial position (FASB ASC 860-20-40-1A). The company must maintain its agreement to pay down company debt. Since the company will be required to use the funds generated from the sale of the receivables to pay down debt, the set of transactions would not
Issue #1 The company reached a settlement with its insurance carrier related to a claim from a tornado that destroyed one of the company’s manufacturing facilities. During the year, the company received proceeds of $20 million from its insurance carrier in connection with its claim for reimbursement for the destroyed building. The company plans to use the insurance proceeds to fund its defined-benefit pension plan, rather than to rebuild the destroyed facility. How is this transaction treated in the cash flow statement? In addition, is there a timing issue?
Analysis #1 By reaching a settlement with its insurance carrier, the company
Conclusion #1 The company has sold its accounts receivable to a nonconsolidated multi-seller securitization vehicle. In return, the company received cash and beneficial interest to reduce its own bank debt. During the year, $11 million of receivables were sold. How is this transaction treated in the cash flow statement? In addition, is there a timing issue?
Issue #2 The company has sold its accounts receivable to a nonconsolidated multi-seller securitization vehicle. In return, the company received cash and beneficial interest to reduce its own bank debt. During the year, $11 million of receivables were sold. How is this transaction treated in the cash flow statement? In addition, is there a timing issue?
Analysis #2 By selling its accounts receivable in exchange for cash and beneficial interest, the company is able to reduce its own bank debt. These sets of transactions are classified as a financing activity (FASB ASC 230-10-20). Based on the case facts, this transaction qualified for derecognition, which is the removal of assets from the statement of financial position (FASB ASC 860-20-40-1A). The company must maintain its agreement to pay down company debt. Since the company will be required to use the funds generated from the sale of the receivables to pay down debt, the set of transactions would not