Polluter Corp Essay

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Polluter Corporation – Case 11-1 Polluter Corporation is a publicly traded manufacturing company, producing household cleaning products for retail sale. The government granted emission allowances (EA’s) to Polluter with varying vintage years to be used between 2010 and 2030. Polluter recorded these EA’s as intangible assets with zero cost basis in accordance with The Federal Energy Regulatory Commission’s accounting guidance. “An emission allowance is an authorization by a permitting authority or the Environmental Protection Agency Administrator to emit a specified amount of pollutant during a specified period of time” (http://www.ferc.gov/help/faqs/form-580.asp#question4). Polluter’s fiscal year ends on December 31. The U.S. government promotes emission control and persuades companies to behave more environmentally friendly by issuing EA’s. EA’s are tradable – generally through a broker. At the end of a pre-determined compliance period, the polluter entities either deliver EA’s equivalent to their actual emissions or pay a fine. As of 2010, Polluter Corp. has been emitting too much greenhouse gases because of their outdated facilities; however, they plan to re-furbish their facilities in 2014. Until then, they need more EA’s, which will be offset by an excess after the updating of their facilities are completed. Polluter has recorded the following transactions in 2010. These transactions will affect the statement of cash flows: 1. 04/02/2010 DR Emission Control Allowances $3,000,000 CR Cash $3,000,000 To purchase emission allowances with a vintage year 2012 2. 04/02/2010 DR Cash $2,000,000 CR Emission Control Allowances $2,000,000 To sell excess emission allowances with a vintage year 2016 1. What is the appropriate classification in the statement of cash flows for the purchase of 2012 EA’s in Polluter’s December

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