Salamander Corp. would like to show increased sales revenue in order to obtain a loan

Question of the day, Chapter 18, #1Salamander Corp. would like to show increased sales revenue in order to obtain a loanfrom Naïve Bank. Salamander’s CFO contacts his friend at Snake Inc., and arranges thefollowing deal:On December 31, 2014, Salamander will ship inventory with a book value of $300,000 toSnake for an agreed sales price of $500,000. Snake will pay the agreed price on January4, 2015. Thus Salamander will be able to recognize sales revenue of $500,000 and anincrease in gross profit for 2014 of $200,000.Salamander agrees to repurchase the goods from Snake on April 30, 2015, for $514,000.Thus, Snake will show higher sales revenue for $514,000 in 2015.“This is a win-win situation,” Salamander’s CEO explained to the board. “We boost oursales in 2014, and return the favor to Snake in 2015. We’ll do the same thing next year!”You, Mr. Cynic, are on Salamander’s audit committee.Do the 2014 and 2015 transactions represent legitimate sales? If not, what is thesubstance of this arrangement?

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