Red Corporation had a temporary cash squeeze near its balance sheet date. It needed cash badly for a seasonal dip in sales. However, a loan covenant requiring a certain debt/equity ratio would be violated if any additional money were borrowed. To remedy this, the top two officers of the Red Corporation set up another corporation, Pink, Inc. Red Corporation made a large sale of inventory to Pink, Inc. at cost. Pink, Inc. used the inventory as collateral for a three month loan from a local bank. The money from the loan was used to pay Red Corporation for the accounts receivable resulting from the "sale." At the end of the three month period, the officers intended to have Red Corporation buy back the inventory from Pink, Inc. at a price that would allow Pink, Inc. to pay off the loan plus interest.