Question - FastTrack Corporation is in need of cash to finance its operations. The company creates a new company, Flex Corporation, which is wholly owned by FastTrack. On October 1, Year 1, FastTrack sells inventory on credit to Flex for $600,000, which in turn immediately uses the inventory for a $480,000, 11% loan (guaranteed by FastTrack) from Georgia State Bank. Flex then uses the proceeds from the loan to repay $480,000 of the $600,000 owed to FastTrack. FastTrack agrees to continue to extend credit for 10 months to Flex for the remaining $120,000. The inventory is Flex's only asset and is stored in a public warehouse. FastTrack agrees to pay Flex the $2,500 monthly storage fee and $4,400 per month for a financing fee at the end of each month. FastTrack also agrees to repurchase the inventory from Flex for $600,000 at the end of August Year 2. FastTrack uses a perpetual inventory system; the cost of the inventory sold to Flex is $500,000. The president of FastTrack has asked you how to account for this series of transactions in Year 1.
REQUIRED: Research the related GAAP and prepare a short memo to the president that explains how FastTrack should record the sale of the inventory on October 1, Year 1, and the payment of the fees at the end of October, November and December. Also explain how FastTrack should report the recorded items in its Year 1 financial statements. Cite your reference and applicable paragraph numbers.