Reference no: EM131777296

Case - Go With the Flow Inc.

Go With the Flow Inc. (the Company) designs, manufactures, and sells a broad range of mobile network products and systems and communication devices, including mobile, cordless, and corded telephones. The Company's primary sources of liquidity are internally generated cash flows, the Company's debt and revolving credit facilities, and the sale of trade accounts receivables. The Company's liquidity and capital requirements are primarily a function of its working capital needs, capital expenditures, and debt service requirements. The Company has the following transactions that need to be analyzed under ASC 230, Statement of Cash Flows (formerly FASB Statement No. 95, Statement of Cash Flows).

1. Insurance Settlement Proceeds

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.

2. Sale of Accounts Receivable

The Company sells its accounts receivable to a nonconsolidated multi-seller securitization vehicle and receives proceeds that consist of cash and a beneficial interest in the transferred receivables (which is classified as an available-for-sale security). The Company uses securitization as a "financing technique" (e.g., to reduce more expensive bank debt - the interest cost on the securitization financing is less than the Company could get on its own bank debt). The Company services, administers, and collects the receivables on behalf of the purchaser. The agreement includes certain covenants and provides for various events of termination. The agreement also requires that proceeds from securitization be used to pay down Company debt. During the current year, $11 million of receivables generated from sales of the Company's inventory were sold under the agreement. Assume that the sale of receivables qualifies for derecognition under ASC 860, Transfers and Servicing (formerly FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, as amended by Statement 166); therefore, the sold receivables are not reflected in the accounts receivable balance in the Company's balance sheet.

3. Acquisition of Property, Plant, and Equipment on Account

In December, the Company incurred $12 million of capital expenditures related to the acquisition of manufacturing equipment and machinery. The terms of the invoice are 2%/15, net 45. The amounts were unpaid as of year-end (i.e., included in the accounts payable balance). The Company intends to pay the invoice in early January, in accordance with the terms of the invoice.

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Required: Determine the appropriate cash flow statement treatment for (1) classification (e.g., operating, investing, financing) and (2) timing, if applicable, for the above transactions.