Accounting Case: Buck's Dilemma

Topics: Cash flow statement, Money, Credit Pages: 4 (864 words) Published: February 26, 2014


ACTG 350: CASE 1

Buck’s Dilemma

Overview

As Buck’s Hunting Equipment, Inc. (Buck) has came to an exciting phase of growth and development, a new complexity involving the assignment and presentation of its borrowing and payment activity as it relates to the revolving line of credit extended has emerged. The report has been broken down into the following sections: 1. Assignment of Borrowing and Lending Activity: Presentation of cash flows from the revolving line of credit. 2. Recommendations for Presentation: the use of net or gross basis when reporting borrowing and payment activities. 3. Applications of the IFRS standards: IFRS standards that apply to Buck’s statement of cash flows (SCF) and how they are differentiated from the U.S. GAAP.

Section 1: Assignment of Borrowing and Lending Activity

One of Buck’s largest decisions lies in the assignment of borrowing and lending activity in the SCF. According to the Financial Accounting Standards Board (FASB), cash receipts1 and payments must be recorded as one of the followingi: a) Operating Activity

b) Financing Activity
c) Investing Activity
Upon reviewing the FASB codification, we found financing activities specifically includes, “borrowing money and repaying amounts borrowed,”ii. Thus, all borrowing and payment activities are required to be reported as financing activities2. All future sections will be discussing borrowing and payment activities as they are recorded in the financing activities sections of the SCF.

Section 2: Recommendations for Presentation

Before proceeding with reporting recommendations for the three scenarios, it would be prudent to offer a brief explanation of the use of gross and net bases and the relative advantages of using one of the two.

The use of a gross basis for reporting borrowing and payment in the financing activities section of the SCF is characterized by a disclosure of...
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