Textbook Problem

Researching Accounting Standards: Dissenting Views and the Statement of Cash Flows

The preparation of cash flow statements is required by generally accepted accounting principles. This accounting standard was initially adopted by a four-to-three vote of the FASB. Several members of the Board took exception to various aspects of the statement including (1) the classification of interest and dividends received and interest paid as cash flows from Operations and (2) the use of the indirect method.

Required:

Obtain the Statement of Financial Accounting Standards No. 95 (FAS 95) from the FASB website. Go to www.fasb.org, highlight the “Standards” tab, select “Pre-Codification Standards,” select “Statement of Financial Accounting Standards No. 95,” and click on the “As Issued” link.

How did dissenting members of the FASB prefer that interest and dividends received and interest paid be classified? (See the section following paragraph 34 of the full text of Statement No. 95.) How did the FASB justify classifying these items as cash flows from operations?

(See paragraph 90 of Statement No. 95.)