Buck’s Dilemma: Gross or Net?
Buck’s Hunting and Equipment Inc. (Buck) has determined that it’s time to expand their retail operations. Buck is planning to build several retail stores over the next three years. In order execute their plan, Buck entered into a $100 million, three-year revolving line of credit (the Facility) with their bank on January 1, 2010.
Buck and his auditor and management would like to know how to book presentation of cash flows through the use of a revolving line of credit is whether to report the amounts borrowed and repaid on a net basis or on a gross basis. FASB’s Accounting Standards Codification 230-10-45-7 states “information about the gross amounts of cash receipts and cash…show more content… Additionally, the terms of composed draws instruct that all sums are due on request; consequently, Buck ought to contemplate the draws as having unusual maturities of three months or less. ASC230-10-45-14 merely permits net exhibition when borrowings have actual maturities of three months or less.
The third scenario involves the same $100 million borrowing capacity:, only each draw does not have its own maturity date specified. Instead, whatever outstanding balance remaining is due by the end of the three-year credit line term, or December 31, 2012. The first draw is made on June 30, 2010, in the amount of $70 million. Another draw for $15 million is made on September 30 of the same year, followed by another draw for $15 million on November 30. The only repayment made by Buck is that made on December 15, 2010, in the amount of $50 million.
The action connected to the first draw of Buck and following payments must be made on a gross foundation inside the investing action part as $70 million influx for the draw, July 30, 210. The action related the second draw made by Buck and resulting payment might be made on basis net inside the financing operation part. The $15 draw on Sept 30, 2010 and the decompensating first of December 2010 net to zero for yearly commentary reasons. The draws in the third scenario just again show some of the traits inside the flow of cash statement procedure. This transaction may be regarded vast in