Which option describes a round-tripping arrangement?

• A. A legitimate intercompany financing arrangement involving asset transfers.
• B. A cycle of unrelated-party sales to inflate revenue.
• C. A one-time transaction between affiliates to settle accounts.
• D. A cycle of related-party sales and repurchases to inflate reported revenue or assets.

Answer: (D)

Round-tripping is a pattern of circular transactions among related parties designed to create artificial activity on the books. In this setup, a sale is recorded and then followed by a repurchase or reverse sale within the same network of related entities. Because the participants are related, these moves can be used to inflate reported revenue or assets without generating real external value or cash flow. The cycle makes the company look more active or solvent than it truly is, which is why this arrangement is a red flag in financial reporting.

The described option captures this by describing a cycle of related-party sales and repurchases aimed at inflating revenue or assets, which is the hallmark of round-tripping. Legitimate intercompany financing or one-off settlements don’t involve this kind of cyclical, self-contained inflation, and cycles with unrelated parties don’t fit the round-tripping pattern.