Essay on Buck's Dilemma

872 Words Jul 31st, 2014 4 Pages
Solution 1 — Classification with the Statement of Cash Flows
Buck should present the borrowing and payment activity as a cash flow from financing activities.
ASC 230-10-45-14 states that “proceeds from issuing bonds, mortgages, notes, and from other short- or long-term borrowing” are a cash inflow from financing activities. Similarly, ASC 23010-45-15 states that “repayments of amounts borrowed” are a cash outflow for financing activities. Solution 2 — Gross versus net presentation

Scenario 1
Net presentation is appropriate. Buck may classify the activity as a $50 million net cash inflow
($100 million in total draws less the $50 million repayment) within the financing activities section of the statement of cash flows.
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Buck’s activities related to both of the draws in Scenario 2 once again reflect some of the characteristics within the cash flow statement guidance. The transactions can be considered large in relation to the maximum borrowing capacity, and the volume of activity is assumed to be large
(note, in practice, these determinations typically involve judgment and are dependent upon individual facts and circumstances). Unlike Scenario 1, the terms of the draws do not consider the draws to be due on demand to Buck’s bank. Rather, the first draw has an original maturity of six months, and the second draw has an original maturity of three months or less. Therefore, in accordance with ASC 230-10-45-9, Buck must present the activity related to the first draw on a gross basis because the original maturity is greater than three months. In turn, net presentation is appropriate for the second draw since it has an original maturity of three months or less.

Scenario 3
Buck should present all borrowing and payment activity under the Facility on a gross basis within the financing activities section of the statement of cash flows. The draws on the Facility do not have any specific repayment provisions other than the overall expiration date of the
Facility as of December 31, 2012. While the activity does have some of the factors needed to

consider net presentation, including large dollar amounts in relation to the maximum borrowing capacity and large

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